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US, UK Throw Auctions; No One Comes


Massive purchase of government debt fails to have desired effect.

Editor's Note: The following content is a compilation of thoughts from today's Buzz & Banter. It is being reproduced here for the benefit of the Minyanville community.

You Can Learn a Lot by Looking
James Anderson, 11:20 a.m.

On the very same day that the Fed started its Quantitative Easing (QE) program (by buying US Treasuries in the open market in an attempt to drive long-term interest rates), the UK had a failed bond auction. The UK Treasury tried to raise 1.75 billion pounds of 40-year Gilts, but investors only bid for 1.63 billion pounds. It was the first failed conventional auction since 1995.

Our Fed and Treasury have chosen to follow the same QE program as the UK. The message investors are sending is pretty simple: If long-term interest rates are manipulated down, they aren't going to play. That means higher rates are inevitable.

Minyans need to watch how these events fall out in the UK. This is definitely a "You can learn a lot by looking" moment. How the UK handles its situation and what happens to Gilt interest rates should be a good clue as to what will happen here, and how you should be ready to adjust your personal investments.

Bad Auction
Tom Fant, 3:55 p.m.

The 5-year Treasury auction was just plain awful. The new 5-year cleared a full 6 basis points higher than where it was trading pre-auction, and is now barely treading water.

The 40-year UK Gilt auction failed for the first time since 1995, despite central banks in both countries purchasing and planning to purchase massive amounts of government debt.

I don't think investors are fooled by the nonsensical rhetoric from our leaders. Don't tell me a strong dollar is in our best interest while funding trillions in bailouts, stimulus and quantitative easing. That dog don't hunt.

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