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Illustration: Annelise Capossela/Axios

Jitters from the latest inflation data popped up across the market, from a selloff in equities to medium-term Treasury yields zooming higher.

Another under-the-radar result: A startlingly weak auction for 30-year Treasuries.

Why it matters: A sloppy Treasury auction could send signals about investor demand and the direction of rates — so markets will be watching to see if there’s a repeat.

What's happening: Wednesday’s auction produced an unusually large tail — a measure of the difference between the expected and actual interest rate (5.2 basis points, in this case).

  • “The tail of the auction was quite dramatic … It's been several years since we saw a tail of this magnitude,” Subadra Rajappa, head of U.S. rates strategy at Société Générale, tells Axios.
  • The bid-to-cover ratio — the number of bids for the paper being offered — was also the lowest in an auction since February. Primary dealers like banks took down a larger than normal portion of the notes because other bidders stepped back, according to a Société Générale research note.

The big picture: This all signaled that for a time on Wednesday, demand for the notes was less than expected.

  • "Given the strength in the [CPI] data earlier in the morning, that probably weighed on people's decisions,” says Steve Rodosky, PIMCO portfolio manager for real return and U.S. long-duration strategies.
  • Another factor: the surprisingly low level to which rates had sunk, even as inflation picked up, may have given bidders pause, Rajappa says.

Yes, but: “I wouldn't extrapolate too much from one auction result. A bigger concern would be if we see more auctions like this, where there's weak demand from end investors,” Rajappa adds.

The bottom line: Stocks have recovered much of their post-CPI losses, and Treasuries have stabilized.

  • But with another strong inflation print likely next month, and more investors betting that rates will soon rise, watch for more volatility in Treasuries.

Go deeper

Felix Salmon, author of Capital
Nov 18, 2021 - Economy & Business

Inflation explained in 3 charts

Data: FRED; Chart: Axios Visuals

During the 1970s, the last sustained period of inflation, economist Arthur Okun invented the misery index — the sum of inflation and unemployment.

The big picture: The index peaked at 21.2% in 1980; its low point was 5.76% in January 2020, just before the pandemic.

California father and son accused of "reckless arson" in Calder Fire

Firefighters at the Caldor Fire along Highway 89 west of Lake Tahoe, California, in September. Photo: Wally Skalij/Los Angeles Times via Getty Images

California officials said they arrested a father and son Wednesday on suspicion of starting the Caldor Fire, which threatened the Lake Tahoe area as it burned for over two months earlier this year. They deny any wrongdoing.

Why it matters: The wildfire was the 15th-biggest ever recorded in California, razing more than 1,000 structures, forcing thousands to evacuate and injuring five people as it burned across nearly 222,000 acres of land in El Dorado, Amador and Alpine counties.

New Zealand aims to create smoke-free generation with tobacco ban

New Zealand Prime Minister Jacinda Ardern at a December news conference in Auckland, New Zealand. Photo: Phil Walter/Getty Images

New Zealand officials announced Thursday legislative plans to outlaw smoking by making it illegal to sell or supply tobacco products to the next generation as part of a lifetime ban.

Why it matters: "People aged 14 when the law comes into effect will never be able to legally purchase tobacco," Associate Health Minister Ayesha Verrall said in a statement announcing the proposed law, part of the Smokefree 2025 Action Plan.