New York Times

Weak Demand at Treasury Auction Gives Wall Street Pause
The New York Times

In an early sign that Washington may have to pay more to finance huge stimulus plans to fix the economy, investors hesitated at buying a government debt issue on Wednesday, forcing the Treasury to pay a higher interest rate than expected. The news led some experts to wonder whether investors’ appetite for Treasuries — considered safe investments — is beginning to wane.

It could spell trouble for the Obama administration as it borrows unprecedented sums to pay for the hundreds of billions of dollars it is spending to keep the country from sliding deeper into recession. The Treasury is issuing a record $98 billion in notes this week alone, and it will sell more to finance the government’s $787 billion stimulus plan and other projects.

A failed bond auction in Britain — the first since 2002 — added to the turmoil as the sale of £1.75 billion ($2.57 billion) of 40-year bonds drew only £1.63 billion of bids. The British government said it could make up the difference in future auctions.

Less investor demand for bonds raises their yields, and consequently, lifts the interest that governments pay to bondholders. But because government bonds are used as a benchmark for the interest rates charged all types of debt, including home mortgages, a sustained rise in their yields could ripple through the economy.