Wednesday’s $39 billion auction of 5-year Treasury notes was met with very poor demand and could drive interest rates higher for America’s increasing deficit. Two metric stood out as harbingers of disappointing results. First, the bid-to-cover ratio came in at only 1.92. This represents the lowest value for this metric in over a year and is an indicator of general investor malaise. Second, the yields for the notes came in unexpectedly higher. This would indicate that the buyers were in the position of strength in the pricing negotiations. Never a good sign if you have a vested interest in the seller, which we all do.

“It was just a horrendous result,” said William O’Donnell, head of U.S. Treasury strategy at RBS Securities in Greenwich, Connecticut. – as reported by cnbc.com

It is anticipated that today’s (Thursday) auction of $28 billion of 7-year notes could be met with equally week demand. Overall, the lack of demand and pricing ability for Treasury notes could mean that the cost of borrowing increases significantly for the US. It appears to also be a clear sign from our largest foreign and domestic lenders that we need to throttle back on our levels of debt.