Weakest U.S. 10-year Note Auction in Decade (Foreign Holdings Shrinking Faster Than Fed Balance Sheet Unwind)

Despite repeated warnings about out of control entitlement liabilities, Congress keeps spending money they don’t have. Instead, they run massive deficits and their demand for Treasury borrowing is out of control (unless you believe in fairy tales like Modern Monetary “Theory” where you run staggering deficits and print money until you drop … or default on your debt).

So, Treasury demand for debt growing and foreign interest in US debt is shrinking. In fact, China and Japan’s Treasury holdings are falling faster than the Treasury is unwinding.

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(Bloomberg) — The U.S. Treasury on Wednesday saw the weakest demand for its benchmark 10-year note in a decade, illustrating the diminishing appetite among some investors to accept current yields.

Bids for the $27 billion of notes exceeded the offering by 2.17 times, the lowest since 2009. While there’s no danger that the government of the world’s biggest economy would fail to fund itself, the drop underscores a shift in demand dynamics for Treasuries that could leave them vulnerable to spikes in volatility.

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Foreign investors, led by China and Japan, have accounted for a smaller and smaller share of American government debt outstanding. And the Federal Reserve, for now, continues to trim its holdings. That’s put the onus on domestic U.S. investors, at a time when 10-year yields are little more than three-month ones.

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As The Fed continues its unwind of its balance sheet, the 10-year T-Note yield continues to decline while gold has generally risen.

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