How is the demand from overseas buyers under the trade war? The answer will soon be revealed tonight at the U.S. Treasury auction

Under the Trump trade war, whether overseas buyers are still keen to continue purchasing U.S. Treasury bonds will be revealed by the bond auctions on Wednesday and Thursday this week.

On April 23, it was reported that the U.S. Treasury will auction $70 billion in five-year Treasury bonds on Wednesday local time. The seven-year Treasury bond auction will take place on Thursday.

According to the latest data from the U.S. Treasury and the Federal Reserve, over 60% of foreign holders' Treasury bond holdings are concentrated in five-year or shorter maturities. Therefore, today's Treasury bond auction is closely watched by the market.

According to the plan, the U.S. Treasury will auction $183 billion in two-year, five-year, and seven-year Treasury bonds this week, marking the first auction of mid-term bonds favored by overseas buyers since President Trump announced "reciprocal tariffs" that disrupted global trade earlier this month.

Gareth Berry, a strategist at Macquarie Group in Singapore, stated that this auction is a "litmus test" for overseas buyers' demand for U.S. bonds in the context of the Trump trade war. Berry pointed out:

"In this week's U.S. Treasury bond auction, the scale of indirect bids should be a key focus. Foreign official holdings are concentrated in short-term bonds, so the upcoming five-year and seven-year Treasury bond auctions will be important indicators of global purchasing willingness."

According to statistical data, in the five-year Treasury bond auction, the share of indirect bidders reached 75.8% in the auction on March 26 this year, close to a historical high. The corresponding indicator for the seven-year Treasury bond auction fell to 61.2% on March 27, the lowest level since 2022.

Direct bidders include hedge funds, pension funds, mutual funds, insurance companies, banks, government agencies, and individuals, serving as an indicator of domestic demand in the U.S. Indirect bidders typically participate in the bidding through primary dealers or brokers, representing an indicator of overseas demand.

Billy Leung, an investment strategist at Global X, stated:

"The five-year bond particularly reflects the demand from reserve managers—short enough to maintain liquidity, yet long enough to yield returns . If demand is weak, it may raise broader questions about global confidence in the U.S. fiscal path."

Wall Street Insight previously mentioned that in Tuesday's two-year Treasury bond auction, the indicator of overseas demand, "indirect bidders," only secured 56.2% of the share, the lowest since the peak of the Silicon Valley Bank crisis in March 2023. Additionally, it was the first time since January that an auction experienced a tail, indicating that the yields demanded by buyers were higher than expected.

Analysis indicates that this suggests investors' confidence in the U.S. fiscal outlook and the Federal Reserve's capabilities is beginning to waver. If more auctions experience tails, especially for five-year and ten-year bonds, the market will inevitably react to the situation: either the Federal Reserve intervenes to control yields, or the bond market begins to reprice the U.S. repayment risk in real-time