## The U.S. Can Sell Bonds. Boy! Can the U.S. Sell Bonds!

Peter Boockvar:

3 year note auction | The Big Picture: The 3 year note auction, the easiest of the big three this week because of its short maturity, was very good. The yield was about in line with expectations but the bid to cover of 2.89 is well above the average this year of 2.52 and the highest since Nov ‘08. Indirect bidders totaled 62.5% which is above the prior two which reflected the new methodology of calculation. With many, particularly the Chinese, shifting to the shorter end of the curve from the longer end, today was an easy sale. The tough part though comes tomorrow when the 10 yr benchmark note auction takes place with the 30 yr following on Thursday. I must say that our country’s finances are in such a state of affairs that the biggest economy in the world has to now cross its fingers right before the published results of debt auctions.

The standard Chicago "Ricardian equivalence" argument is that government deficits have no effect on nominal aggregate demand because private savings rise dollar-for-dollar with the government's deficit. The magnitude of the tax cuts associated with the stimulus package are running at about $25 billion per quarter--an extremely small share of the rise in Treasury borrowings. Otherwise, Chicago says, supply-and-demand are supposed to rule--and a sharp increase in Treasury borrowings is supposed to carry a sharp increase in interest rates along with it to crowd out other forms of interest sensitive spending. Hasn't happened. Hasn't happened at all: it is astonishing. Between last summer and the end of this year the U.S. Treasury will expand its marketable debt liabilities by$2.5 trillion--an amount equal to more than 20% of all equities in America, an amount equal to 8% of all traded dollar-denominated securities. And yet the market has swallowed it all without a burp...