Stellar U.S. 30-Year Treasury Bond Auction

Thursday’s 2.875% coupon went off at a price of $97.927211 for a yield of only 2.98%. The Treasury also had $2.52 tendered for every $1 it accepted $40.48 billion versus $16 billion) and this has been the lowest Long Bond yield at an auction in 2013.

The 10-year Treasury note is yielding only 1.79%. Now look at this for some startling news. The “Check the Debt” portion of the Treasury website shows the following data as of May 7: $11,917,157,774,325.76 debt held by the public and $4,878,394,615,872.64 in intragovernmental holdings. That generates a total public outstanding debt of $16,795,552,390,198.40. At some point these numbers will have to seem like real numbers other than just to a few of us concerned citizens.

Keep in mind that stocks have been hitting record highs almost each week of late. The DJIA crossed above 15,000 and the S&P 500 is now well above 1,600. Imagine how low yields would go if stocks started to really sell off due to a market shock of some sort. You could be looking at the Treasury borrowing costs down at an unimaginable 2% for the 30-year Long Bond.

If you want to put this into more perspective, think about this notion. If rates rise 100 basis points in a very short period of time, just 1%, the market value of these freshly created long bonds would fall by close to 17%. For another perspective, over 30 years you do not even get back a 100% income stream over the 30 years and you get to pay income tax on this each and every year.