On Wednesday, a US Treasury bond auction that had not attracted much attention in the context of consecutive market turbulence unexpectedly became a "source of anxiety" on Wall Street
The US Treasury Department auctioned US $42 billion of 10-year treasury bond on Wednesday, but the demand was surprisingly unsatisfactory, which made many investors nervous and the market trading was volatile. The yields of US Treasury bonds of various maturities ultimately rose overnight, while the three major US stock indexes, although initially rising with the rapid rise of technology stocks at the opening, also lost momentum in afternoon trading and ultimately closed down.
Market data shows that long-term bonds have become a major selling area in the market overnight. As of the end of the New York trading session, the yield on 2-year Treasury bonds fell 1.3 basis points to 3.97%, the yield on 5-year Treasury bonds rose 3.4 basis points to 3.769%, the yield on 10-year Treasury bonds rose 5 basis points to 3.947%, and the yield on 30-year Treasury bonds rose 7.2 basis points to 4.253%.
With the recent rapid rise in US bond prices, US bond yields are now far below the level of a month ago - the 10-year US bond yield, known as the "anchor of global asset pricing," fell below the psychologically significant 4% mark earlier this month, which is believed to have weakened interest in Wednesday's US bond auction.
In the end, the winning rate of the 10-year US Treasury bond auction held last night was 3.960%, which was more than 3 basis points higher than the yield of the same year's government bonds in the secondary market before the auction, and the largest tail spread in at least a year and a half, indicating weak market demand. The bidding multiple is 2.32 times, also setting a record low since December 2022.
In this auction, the proportion of direct bidders, including hedge funds, pension funds, mutual funds, insurance companies, banks, government agencies, and individuals, who were allocated was only 16%, lower than the average level. The allocation proportion of primary dealers with the obligation to purchase all failed bonds to prevent abortive auction reached 17.9%, higher than the average level, indicating insufficient real demand.
In response, Vail Hartman, an American interest rate strategist at BMO Capital Markets in New York, said, "Investors are not willing to pay for 10-year treasury bond bonds with a yield below 4%, which indicates that this trend may continue for some time before bargain hunting reappears in a more meaningful way."
Peter Bookvar, chief investment officer of Bleakley Consulting Group, also pointed out that Wednesday's 10-year treasury bond auction was "extremely bad". I still believe that long-term interest rates are likely to remain high for a period of time, and the reasons are not entirely good - that debt and deficits are finally being taken seriously, and foreign investors are not helping much
Analysts also say that the issuance of a large number of corporate bonds has pushed up yields.
Many issuers suspended their issuance on Monday, and may even remain inactive on Tuesday, just to ensure greater clarity on how risky assets will be accepted, while on Wednesday these issuers entered the market to issue bonds, "said Michael Lorizio, a senior fixed income trader at Manulife Investment Management in Boston.
It is worth mentioning that after the dismal demand for US bond auctions, in addition to the bond market, there has also been some pressure on the US stock market, indicating that investors are still feeling nervous after the recent sharp decline in global stock markets. Peter Tuz, President of Chase Investment Counsel, said, "There are many things to worry about in the next eight weeks or so, so I expect greater volatility. I wouldn't be surprised if there were another small-scale sell-off after a few days of gains
In the view of Mark Hackett, head of investment research at Nationwide, the events of the past week have been a "master lesson" on how trading sentiment can dominate market trends.
At present, after the poor performance of the 10-year US Treasury bond auction on Wednesday, some industry insiders have also begun to worry whether the performance of tonight's 30-year US Treasury bond auction will follow suit. The well-known financial blog website Zerohedge quoted Bloomberg strategist Cameron Crise's viewpoint, pointing out that a clear aversion to US Treasury bonds with yields below 4% is not a good thing, which also raises a question: what about the $25 billion 30-year US Treasury auction on Thursday?
Goldman Sachs has concluded in recent reports that in the absence of "widespread evidence that the labor market or market functions are rapidly deteriorating," US bond yields may have fallen too low at the moment.
Goldman Sachs interest rate strategists William Marshall and Bill Zu wrote, 'The significant upward trend in US Treasury bonds from now on is that one (or both) of the two risks mentioned above becomes a reality, and under more favorable outcomes, we believe that the center of gravity of the yield curve may be higher than the current level.'.
Although the bank's economists are revising their interest rate forecasts for the Federal Reserve and the possibility of an economic recession, their strategists' baseline outlook still aligns with the central scenario of 10-year Treasury yields concentrated above 4%.