Today's Treasury auction goes "no bid" (Fed tried to sell 30-year bonds and not enough buyers at 4.125%)

Economy
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This is bad.
(Like a bad noise in your car that might be an easy fix but might be a major tragedy, you don’t know which, kinda bad.)

Anyway:
Just like it does several times a week, the Fed tried to sell treasuries today.
Just like it does several times a week, Fed said “I want to sell this number of treasuries at this interest rate.”

But, for the third time in two weeks something very unusual happened;
not enough buyers were willing to buy them all.

The Fed tried to sell $47b worth of 30-year bonds at 4.125% interest.
The Fed almost always gets what it wants at these auctions.
Almost always, enough buyers show up and buy them, in fact usually there is a surplus of buyers and an auction results.
Today third time in two weeks not enough buyers showed up, and the Fed was able to sell only $20b of them.

It’s bad.
It’s like when your car makes a loud knocking sound, maybe . . . hopefully, you just need to change the oil and get a timing adjustment. It scared the market though. There had been a rally going on but the market did an about face.
Biggest losers (besides Treasuries) were big banks and small companies

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Here is a couple news articles about it.
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It’s highly unusual for a bond auction to miss this badly and it argues for a return to the highs in yields… . .

Yesterday’s 10-year auction also tailed.

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.

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.

.

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- A Treasury bond auction saw weak demand on Thursday amid fears soaring US debt will overwhelm Wall Street.

-The US sold $20 billion of 30-year bonds, but dealers had to take up more supply after investors balked.

A Treasury bond auction Thursday saw weak demand, adding to growing alarms that the explosion in the supply of US debt could overwhelm Wall Street. . . .

The auction tail, or the gap between the lowest bid price versus the average, was the narrowest since November 2021, according to the Financial Times, representing another sign of waning demand.

The yield on the 30-year Treasury jumped 12 basis points to 4.856%, and the 10-year yield surged 10 basis points to 4.7%.
Thursday’s results followed other soft Treasury auctions this week, including a $46 billion sale of three-year notes and a $35 billion sale of 10-year bonds.

The auctions come as federal deficits have exploded this year, raising fears about investors’ ability to absorb all the fresh debt the government must issue. Since June, the US has sold more than $1 trillion in T-bills.

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Most likely what scared the market (into not buying 30-year treasuries at only 4.125%) is this Five-year inflation chart

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Four months in a row, the headline CPI has been moving the wrong direction.
Four months in a row, inflation, though below the recent highs, was above the target rate and rising(ish). Below is a long-term chart of US inflation, for context. (Notice the little red arrow at the end.)

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As we can see form the long-term chart, inflation has a maddening habit of returning stronger-than-before.