US short-term borrowing costs hit highest since 2008

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Europe

Some of the US government’s short-term borrowing costs rose to their highest level in more than nine years on Tuesday as the government raised 179 billion US dollars in the Treasury securities market to fund spending and make debt payments.

Tuesday’s auctions made up more than half of the 258 billion US dollars in Treasury debt supply scheduled for sale this week, which is projected to raise nearly 48 billion US dollars in new cash for the government.

The amount of Treasury issuance is the second largest ever over a three-day period, falling 1 billion US dollars short of the record high set in August 2010, according to Wrightson ICAP chief economist Lou Crandall.

Concerns about an expected surge in federal borrowing have escalated after a major tax overhaul late last year that is estimated to add up to 1.5 trillion US dollars to government indebtedness.

Adding to these concerns was a two-year US budget deal reached this month that would increase spending on military and entitlement programs by 300 billion US dollars.

Tuesday’s short-dated government supply had a mixed reception from investors and dealers.

Analysts and traders said they were more concerned about demand for the 35 billion US dollars. five-year note sale on Wednesday and 29 billion US dollars. seven-year auction on Thursday.

These medium-term Treasuries were hit hard last week by stronger-than-forecast inflation data that stoked bets the Federal Reserve may speed up its interest rate hikes.

The yield on seven-year Treasuries was 2.817 percent on Tuesday, below a near seven-year high set last week, while the five-year Treasury yield reached a near eight-year peak at 2.689 percent.

“Demand could be spotty here because the two-year (auction) didn’t do particularly well,” said Mary Anne Hurley, vice president of fixed income at D.A. Davidson in Seattle.

The Treasury will also auction 15 billion US dollars in two-year floating-rate notes on Wednesday.

On Tuesday, the Treasury sold 51 billion US dollars of three-month bills at an interest rate of 1.63 percent and 45 billion US dollars of six-month bills at an interest rate of 1.82 percent. These were record-high amounts offered in an auction for both maturities, and they sold at the highest yields since September 2008.

The Treasury also sold 55 billion US dollars in one-month bills at an interest rate of 1.380 percent, and 28 billion US dollars in two-year fixed-rate debt at a yield of 2.255 percent, the highest since August 2008.

Source(s): Reuters