Tonight, U.S. Treasury Bonds Face a 'Test'!
Tonight, U.S. Treasury bonds will face a 'test' as the U.S. Treasury is set to auction $16 billion in 20-year bonds. This is the first long-term bond auction since Moody's downgraded the U.S. credit rating from the highest AAA level, and the results will directly reflect market confidence in U.S. Treasury bonds.
The market's tension is not without reason.
Just last Tuesday, Japan's 20-year bond auction recorded the worst results in 12 years, leading to a 15 basis point spike in yields in a single day. Wall Street is concerned that tonight's U.S. bond auction may replicate this situation.
Currently, the yields on 20-year and 30-year U.S. Treasury bonds are approaching the 5% mark. When bond yields soar, it means that bond prices will plummet, causing bondholders to lose money and triggering more selling pressure.
What impact will this have on U.S. stocks? They can easily be 'dragged down' by U.S. Treasury bonds.
Last night, all three major U.S. stock indices closed lower, with the S&P 500 ending a six-day winning streak. Part of the reason is that investors are worried about soaring Treasury yields impacting the stock market.
Data from the Chicago Mercantile Exchange shows that many people are buying options betting that the 10-year yield will rise to 5% in the coming weeks. To hedge against risk, everyone is willing to pay a higher cost for insurance, indicating the market's anxiety.
J.P. Morgan analysts put it bluntly: both trade and monetary policies are filled with uncertainty, and U.S. Treasury yields may experience a 'bear steepening'—in simple terms, long-term rates will rise faster than short-term rates, reflecting concerns about the economic outlook.
In short, tonight's bond auction is like a stress test for the U.S. economy. If the bidding goes poorly, it may trigger a chain reaction: bond market crash → soaring yields → stock market pressure → economic cooling. This vicious cycle is exactly the nightmare that Wall Street is currently most worried about.