Ugly Treasury auction sends the dollar even higher

<p>There was a nearly 4 basis point tail on the 30-year sale. That's certainly going to add to the term premium argument.</p><p>It's highly unusual for a bond auction to miss this badly and it argues for a return to the highs in yields.</p><p>Yesterday's 10-year auction also tailed.</p><p>I can't stress enough how rare it is for a bond auction to tail this badly. It speaks to some kind of real change in underlying Treasury demand, or at least some hesitation that hasn't been there in decades.</p><p>In the past week, there's been some cautious optimism that long-end rates were peaking but I'm much less confident that's the case now. Expect 30s to go back and test 5% again.</p><p>That's a big tailwind for the dollar as it makes differentials more attractive but it might ultimately be a double-edged sword. The term premium argument certainly leads back to deficits as a potential culprit and if Congress decides to embrace true austerity then grown is going to become a problem. Moreover, if the US can't borrow, then who can?</p>

This article was written by Adam Button at www.forexlive.com.