Where Were You During the Great T-Bill Massacre of 2018?

Nothing scares big investors more than the notion that the U.S. could hold a bond auction and nobody showed up. After all, Treasuries are the world’s safest investment, backed by the full faith and credit of the U.S. The securities, especially Treasury bills, are as good as cash. But on Monday, investors — and the Treasury Department — got a whiff of what disaster could look like if investors decided U.S. debt wasn’t worth the paper it was printed on.

At the government’s weekly auction of four-week bills, which was moved up a day to account for the Fourth of July holiday, investors placed bids for 2.45 times the $35 billion amount offered. That’s the lowest so-called bid-to-cover ratio in a decade and far below this year’s average of 2.99 times. Rates on one-month bills shot up 10 basis points to 1.85 percent after the auction in a highly unusual move for a market that typically fluctuates only about a basis point or two a day and a sign that bond traders aren’t quite sure what to make of the poor auction. Perhaps it’s just a function of the auction’s timing, coming later on an off day in a holiday week when many A-list traders are probably out of the office. The U.S. better hope that’s the explanation, because traders have openly talked about the possibility that China might try to retaliate against tariffs imposed by the Trump administration by slowing its purchases of U.S. debt or even outright reducing its $1.18 trillion of holdings. There’s no way to prove that was at play in the four-week bill auction, but it’s also no secret the U.S. is seeking to double its borrowing this year to $1 trillion to pay for the growing budget deficit resulting from the Trump administration’s tax changes. The nonpartisan Congressional Budget Office has said the budget deficit will surpass $1 trillion by 2020, two years sooner than previously estimated.