Focus on U.S. Treasuries this week: Thursday's long-term bond auction tests the quality of U.S. debt!

Is the U.S. Treasury auction a market barometer? The 30-year U.S. Treasury auction has become a key test of market confidence.

This Thursday, the U.S. Treasury will auction $22 billion in 30-year bonds, an event that has become one of the most watched occurrences on Wall Street.

Recently, against the backdrop of worsening U.S. debt and deficits, Moody's downgrade of the U.S. credit rating, and controversies surrounding the Trump tax reform, global long-term bond yields have surged. Therefore, the results of this auction will directly reveal the strength of market demand and have far-reaching implications for the global bond market.

Investors Abandon Long-Term U.S. Treasuries, 30-Year Bonds the "Least Popular"

As global investors' confidence in long-term debt wavers, the 30-year U.S. Treasury bond has been labeled the "least popular bond."

Jack McIntyre, a portfolio manager at Brandywine Global Investment Management, stated:

“All auctions will be seen as a test of market sentiment, and it feels like the U.S. Treasury's 30-year bonds are currently the least popular bonds.”

The yield on the 30-year U.S. Treasury bond reached a nearly 20-year high of 5.15% last month, and although it fell to 4.94% by last Friday, it is still more than half a percentage point higher than levels in March of this year. This trend indicates that market confidence in the long-term fiscal situation of the U.S. is wavering.

The rapid expansion of U.S. debt and deficits is the core driver of the yield surge. Greg Peters, co-chief investment officer of PGIM Fixed Income, believes it is safer to avoid long-term U.S. Treasuries as they are increasingly tied to political forces rather than monetary policy.

“Look at what’s happening in the long-term rate market: it’s becoming disconnected. It’s being driven by risk premiums, politics, and all these other factors.”

Fred Hoffman, a former fund manager and current finance professor at Rutgers Business School, warned:

“We are in a disturbing fiscal trend.”

“If this auction and the upcoming ones continue to break down, with poor tails and terrible bid-to-cover ratios, then we are in trouble.”

Hoffman noted that in addition to focusing on tail spreads and bid multiples, the participation of foreign investors will also be a focal point.

Market Sentiment Testing Week

Despite pervasive concerns, this week's auction may still bring a glimmer of hope.

McIntyre from Brandywine revealed that he recently purchased 30-year Treasuries at around 5% yield, believing this level is attractive to some investors.

Additionally, the U.S. Treasury will also auction $58 billion in 3-year Treasuries and $39 billion in 10-year Treasuries on Tuesday and Wednesday, respectively, and the overall demand performance will provide more clues for the market.

Kathy Jones, chief fixed income strategist at Charles Schwab, believes:

“Overall, the most likely outcome in the future is a steeper yield curve. If the data is weak and the Federal Reserve cuts rates, short-term yields may decline, but long-term yields will still be troubled by deficits and expectations of a weak dollar.” According to data from the New York Federal Reserve, the 10-year U.S. Treasury yield term premium has risen from negative values a year ago to nearly 0.75 percentage points, further intensifying the pressure on long-term yields