Primary Dealer interest at short end disappearing: $72.9 billion dealer bid in 2 Year was lowest since December 2008.
What the above means is that the major financial institutions listed below are not buying short-term U.S. government debt, i.e., bills & notes, from the U.S. Treasury.
This is bad news for the U.S. If the price of short-term government debt falls, then U.S. short-term interest rates will rise. This will result in increased costs for the U.S.'s already insurmountable debt costs.
Here's a generalization of the math involved. This is a demonstration of how interest rates rise as a result of bond prices falling.
Say that you have 2-year bond prices as listed below.
*2-year note
*$1,000 face value
*6% annual interest rate
*Semiannual interest payment: $30
Demonstration of the 6%: ($30 + $30) / $1000 = 6%
As buyers start to question the likelihood that the borrower will be able to pay them back the principle, some people will sell their bonds and others won't buy them in the secondary market.
As a result, bond prices will start to fall a little bit. So, say the bond's value listed above falls to $970.
Then your effective interest rate in the open market is this: ($30 + $30) / $970 = 6.185%
Therefore, no buyers will buy a country's newly issued bonds that are offered at the old 6%, because they are no longer competitive with what people can get in the secondary market.
So, a country in question must then issue new bonds (in the same format as above) as such:
*2-year note
*$1,000 face value
*6.185% annual interest rate
*Semiannual interest payment: $30.925
In conclusion, you see how the interest rate borrowed at rose almost 2/10's of a percent (6.185% - 6% = 0.185%) as a result of bond prices falling $30. This is a general demonstration of how bonds and interest rates are "inversely related." This means as the price of bonds falls, interest rates rise.
-------------------------------------------------------------------------------------------------
List of the Primary Government Securities Dealers Reporting to the Government Securities Dealers Statistics Unit of the Federal Reserve Bank of New York
1. BNP Paribas Securities Corp.
2. Barclays Capital Inc.
3. Cantor Fitzgerald & Co.
4. Citigroup Global Markets Inc.
5. Credit Suisse Securities (USA) LLC
6. Daiwa Capital Markets America Inc.
7. Deutsche Bank Securities Inc.
8. Goldman, Sachs & Co.
9. HSBC Securities (USA) Inc.
10. Jefferies & Company, Inc.
11. J.P. Morgan Securities LLC
12. Merrill Lynch, Pierce, Fenner & Smith Incorporated
13. MF Global Inc.
14. Mizuho Securities USA Inc.
15. Morgan Stanley & Co. Incorporated
16. Nomura Securities International, Inc.
17. RBC Capital Markets, LLC
18. RBS Securities Inc.
19. SG Americas Securities, LLC
20. UBS Securities LLC.
