The Podcast of the Lotus Eaters PREVIEW: Brokenomics | Where Does The Debt Go?
Jul 1, 2025
Explore the intricate workings of the bond market and how national debt is shaped through the auctioning of Treasury bonds. Discover how technology influences borrowing and the factors that drive market demand, such as the bid-to-cover ratio. It's a fascinating look into where debt actually goes and its implications for the economy.
AI Snips
Chapters
Transcript
Episode notes
How US Treasury Bond Auctions Work
- The US Treasury issues bonds via regular auctions where bidders set acceptable yields through competitive or non-competitive bids.
- The auction uses a Dutch auction mechanism where bidders all pay the stopout yield, ensuring efficient government borrowing.
US Treasury Bond Market Size and Participants
- The US Treasury bond market is the world's largest and most liquid financial market, with daily cash bond trading around $1.1 trillion.
- High-frequency trading firms dominate more than half of this market, utilizing algorithms for fast buying and selling.
Liquidity Premium on Newer Bonds
- Newer US Treasury bonds, or "on the run" bonds, carry a liquidity premium and trade more favorably than older bonds even if they have identical terms.
- Traders prefer newer issues for ease of sale and tighter spreads.