Where Are The Bond Buyers Going To Come From?

 The Treasury is planning to sell a fresh $4 trillion of debt this year in order to finance Mr. Biden's emergency relief plan ($1.9 trillion) plus the "regular" annual budget deficit.Which begs the question.. other than the Fed and the banks who buy and immediately repo, again with the Fed, who's going to buy  the flood of new debt?

The US Treasury is not used to having its bonds snubbed at auction, but that is exactly what happened last Thursday.  The $62 billion 7 year Treasury note auction was an unmitigated disaster: bid/cover at  a measly 2.04x, the lowest since 2009, a fat "tail" (the Treasury had to pay a significantly higher interest rate than it expected), AND a massive 40% of the issue had to be bought by the primary dealers, ie the buyers of last resort.

In short, the auction "failed", for all practical purposes;  an event that the US Treasury, and the rest of the world, is most certainly not used to.  And that's for just $62 billion... How and where will the Treasury find buyers for $4 trillion?

The US Treasury bond market is the largest, most sophisticated market in the world.  NASDAQ and its gang of glam-rock stocks may attract the spotlight, but the real money is in bonds.  And always has been.  When the bond market sends a signal like the one last Thursday, you can be sure that the Treasury and Fed sit up and start biting their nails because the unquestioned demand for Treasurys is nothing less than the foundation of American global power.

Am I being a touch melodramatic? Perhaps... but I have seen other failed government bond auctions  outside the US, and they always presage serious trouble.  In the case of the US, the message is very, very clear: Ladies and Gentlemen (in that order) Yellen, Lagarde, Biden and Powell, get your act together.  Your fiscal AND monetary policies are dangerous and untenable, a rare confluence of the two being in negative sync to result in a potentially vicious downward spiral.  

Stop trying to talk the market up, it's way past listening to words and is now demanding action.