The results are in and they are not good for Turbo Tim. Although the USD should be falling and gold rising on the poor auction results, it appears damage control is presently overwhelming free market activity.

Regards - VHF

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10 Year Auction Result

John Jansen

June 10, 2009 1:32 pm

Tim Geithner invited a host of folks to 10 year note auction party and very few of the guests showed up.

The auction of $ 19 billion 10 year notes received a less than enthusiastic response from investors. I think we can say that investors responded with a rousing Bronx cheer to the offering.

At the time of the auction the issue was trading at 3.955 percent in the brokers market. The market clearing price was 3.99 which represents a tail of 3.5 basis points.

The market has collapsed since the release of the results. As best I can tell the issue has not breached the 4 percent level (yet).

The yield curve is steepening quite a bit in response.

The 2year/10 year spread is now 262 basis . It traded briefly at 263 basis points which is a 50 percent retracement of the move from 278 (pre labor) and the 248 open yesterday morning.

The 10 year/30 year spread is 82 basis points and traded as narrow as 75 basis points. The street will spend the next 24 hours shooting the taxpayer in the big toe as it sets up for the bond auction tomorrow.

In the aftermath of the auction the issue traded back to a 4.82 percent yield. One could make a case that we are within spitting distance of a 5 percent bond.

How do you say short circuit the recovery with higher interest rates? Or maybe it is the Bernanke conundrum.