Treasury Bond Auctions A Window To The Global Economy

A break down of who buys and what exactly sells at the U.S. Treasury bond auctions.

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AUDIE CORNISH, HOST:

From today's buying spree on Wall Street, we turn to another mainstay of the economy, a process that happens every week and gets much less attention. I'm talking about Treasury bond auctions.

All right. Hold on, hold on. Before you turn the dial, this is Treasury bond auctions through the eyes of Adam Davidson of NPR's Planet Money team. He says they're not as boring as they sound. In fact, he says they just may hold the key to nearly everything happening in the global economy.

And Adam joins us now from New York. And, Adam, today you actually were watching the auctions held for four-week and 52-week Treasury bonds, whatever that means. What's so fascinating about these sales?

ADAM DAVIDSON, BYLINE: Well, at Planet Money, we study all these financial crises going on all over the world - you know, obviously here in the U.S. with the sequester and our slow economic recovery; in Europe, the many financial crises we keep hearing about; and then also all sorts of smaller crises in Asia and Latin America and Africa.

And what we have learned, much at first to our deep chagrin, is that the single thing that helps you understand how to compare these different crises is government bond interest rates. That interest rate tells you at a glance how the global pool of investors - this giant global pool of money - thinks about the relative risks of all of these different crises all over the world. And where did those numbers come from? More than anything, the single most important one is the U.S. Treasury bond auction; exactly what happened today, like it does one, two, three times a week, every week.

CORNISH: So what do these auctions actually look like, and what exactly are they auctioning off?

DAVIDSON: You know, I was once invited to an auction. A bond dealer invited me to an auction. I got all excited. I thought, should I wear a suit? What does one wear to an auction? It turns out, nothing like that at all. This is just a bunch of dealers all over the world sitting at computer screens typing. In fact, while the auction was happening, I was all nervous and excited. And the trader was talking to me, and then he turned and typed a few keys on his keyboard, turned back to me, and a few minutes later, I said, when is the auction? He goes, oh, when I type. That was the auction. That's all it is.

(LAUGHTER)

DAVIDSON: But basically, what it is, is the U.S. government, as we famously know, have to borrow a lot of money. They borrow it in different increments. So they go out to the world's investors and say, hey, we want to borrow money from you. How much will you charge us in interest to borrow from you? And that's a competitive process. It's an auction. And today, they wanted to borrow $45 billion for four weeks. They went out to the world's banks and said, hey, what do we have to pay you to lend us $45 billion?

CORNISH: So what was it like today? What was the bidding?

DAVIDSON: The bidding was among the lowest interest rates ever in history. What that tells you is the investors basically said, we will give you $45 billion, and you have to give us almost nothing back. To be precise, these world investors were saying, we're going to lend the U.S. government $100 for a month, and all we want back is 6/10 of a penny in a month. That's nothing. Basically, the U.S. government was able to borrow $45 billion for as close to free as imaginable.

CORNISH: But if the U.S. is able to borrow at such low rates, I mean, isn't that a good thing?

DAVIDSON: In normal times, it would be a wonderful thing. I mean, if, you know, just like if your credit card rate is low, you're able to borrow a lot of money and the burden is not quite as bad as it would be. But there's a few problems with our super low interest rates right now. One of them is, in the view of many, we're sort of squandering them. I mean, one reason we're able to go on this silly season of constantly deferring important financial decisions is because our interest rates are so low. That takes a lot of pressure off both Democrats and Republicans and allows them to kind of indulge in these constant battles.

The other issue, though, is why are our interest rates so low? It's not that the world's investors are saying, boy, we love the U.S. economy. What a great economy. It's so well-run. It's in such good shape. Not at all. What they're saying is when we look all over the world, when we look at Europe and we look at Asia and we look at the private banks and we look at private companies, we don't like any of it. So the U.S., you're not great, but you're better than everyone else. You're the cleanest dirty shirt.

CORNISH: That's a little depressing. That's setting the bar rather low, don't you think?

(LAUGHTER)

DAVIDSON: Yes, basically. You're lousy, but you're less lousy than everyone else.

CORNISH: That's Adam Davidson of NPR's Planet Money team. Adam, thanks for explaining it to us.

DAVIDSON: Thank you, Audie.

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