The cold reception of long-term bond auctions triggers panic, and US stocks face the most severe sell-off since April

According to Zhitong Finance APP, on Wednesday, the U.S. stock market experienced a sharp decline, with the three major indices recording their worst single-day performance in a month, as market sentiment was heavily impacted by the bond market. Concerns over the sustainability of U.S. fiscal policy intensified among investors, leading to a fierce sell-off of long-term U.S. Treasuries, with the yield on 30-year bonds rising above 5% again, exacerbating worries about rising financing costs in the future and triggering a chain reaction in the market.

On that day, the results of the U.S. Treasury Department's auction of $20 billion in 20-year bonds were disappointing, with weak demand causing the auction yield to far exceed expectations, triggering a drop in bond prices and a surge in yields. The market reacted sharply, with the yield on 10-year U.S. Treasuries rising to 4.61%, nearing its yearly high, while the 30-year yield briefly surpassed 5.02%, marking the first time since November of last year. The rapid rise in bond yields posed a risk of valuation compression for the stock market, compounded by renewed focus on U.S. debt issues, leading to heightened investor risk aversion and increased selling pressure.

By the close, the Dow Jones Industrial Average fell 816.80 points, or 1.91%, to 41,860.44 points; the Nasdaq Composite dropped 270.07 points, or 1.41%, to 18,872.64 points; and the S&P 500 index declined 95.85 points, or 1.61%, to 5,844.61 points. According to Bloomberg data, this was the worst single-day performance for the three major indices since April 21.

Peter Cardillo, Chief Market Economist at Spartan Capital Securities, stated that the bond market is "sinking," and the surge in Treasury yields is putting tremendous pressure on the stock market. He pointed out that the U.S. still faces uncertainties such as tariff issues and budget disputes, and the market lacks confidence in long-term fiscal policy, while Congress is working to push forward President Trump's budget proposal, which, although it includes tax cuts and spending reductions, has not substantially alleviated the deficit problem. Cardillo noted that in this context, the continued rise in yields poses "extremely challenging headwinds" for the stock market.

Despite the tech giant Alphabet (GOOGL.US, GOOG.US) rising over 2.7% during the day, briefly stabilizing the Nasdaq, market sentiment was quickly dampened. Reports indicated that OpenAI intends to acquire an artificial intelligence company founded by former Apple Chief Design Officer Jony Ive, which put pressure on Apple (AAPL.US), causing its stock to drop by 2.31%. Meanwhile, the weak performance of the 20-year Treasury auction again sparked concerns about waning interest from overseas investors, further amplifying vigilance regarding the long-term fiscal sustainability of the U.S.

Brian Mulberry, a portfolio manager at Zacks Investment Management, pointed out that the core question in the current market is: How much economic growth can the U.S. still achieve? Can the government's revenue sources support its massive debt issuance? He emphasized that this bond market turbulence is not unique to the U.S.; bond yields in Japan and Europe are also rising simultaneously, indicating that global markets are facing common pressures of inflation and interest rate repricing On the same day, another factor putting pressure on the U.S. stock market was poor retail performance. Target (TGT.US) reported earnings that fell short of expectations, causing its stock price to plummet by 5.21%. Additionally, Dow component UnitedHealth (UNH.US) dropped by 5.78%, becoming a significant drag on blue-chip stocks.

The U.S. dollar also showed signs of weakness, with the ICE Dollar Index falling by 0.52% that day, while gold and Bitcoin rose by 0.97% and 0.03%, respectively. The latter briefly surpassed $109,000 during the session, setting a new historical high, indicating that investors are seeking alternative assets to hedge against sovereign credit risk.

Currently, the issues surrounding the U.S. fiscal deficit and disputes over the federal government budget are ongoing, and the market is highly sensitive to financing pressures in a high-interest-rate environment and policy uncertainty. The storm in the bond market has already transmitted to the stock market, and if demand for U.S. Treasuries continues to weaken and yields rise further in the coming weeks, it could pose a greater shock to overall risk assets