5-Year Auction Hits Record Low Yield

Uncle Sam gets to borrow money at this point for closer and closer to free each day. The insatiable appetite for the flight to safety is causing a new trend where investors are willing to just take a return of capital rather than a return on capital.  The U.S. Treasury’s five-year Treasury note auction went off at a record low this Wednesday.  If you can imagine it, the yield was 0.584%.  In five years time those investors who purchased $100,000 will get back less than $103,000 and they get to pay tax on the interest to boot!

Today’s offering was a $35 billion offering in size.  The size may have stunted some of the demand as the bid to cover ratio was only 2.71 versus more than the most recent average of more than 2.9 seen.

Mutual funds, investment managers, and banks were the weak link based upon the direct bidding.  They were barely 5% of the offering and that was the lowest level in years.  Maybe it is just the summer doldrums or maybe it is because there is no return.  Foreign interest via indirect bids came to 42.6%.

If this yield seems low, just go to yesterday’s two-year auction. That went off at a paltry 0.22%.

JON C. OGG