Recently, the U.S. Department of the Treasury has once again issued a batch of 5-year Treasury bonds, with a total amount reaching 46 billion U.S. dollars.
However, a warning bell has been sounded for the United States as the winning bid yield has reached as high as 4.4%.
This level is the highest point in the past 16 years, highlighting the efforts of the U.S. Treasury to continuously increase yields in order to attract investors.
Even so, the subscription multiple for this Treasury bond issue was only 2.54 times. This situation indicates that despite the U.S. Treasury's willingness to pay higher interest, investors are not buying it.
One piece of data after another, one fact after another, all point to the fact that U.S. debt is indeed not selling well.
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The winning bid yield for this Treasury bond issue has reached a historical high, fully demonstrating that investors' demand for U.S. bonds is not very strong, so the U.S. Treasury can only continuously increase yields to attract investors' interest.
Now the U.S. Treasury needs to pay a debt interest of as high as 850 billion U.S. dollars a year, and continuously increasing yields means that the annual interest expenditure will reach 1,000 billion in the future.
However, even with higher interest payments, investors are still indifferent to the subscription of this Treasury bond issue.
There may be multiple reasons behind this phenomenon.When the economy faces uncertainty and risk, investors become more cautious, seeking assets with relatively lower risk. U.S. Treasury bonds used to be considered low-risk investments, but now they have become risky assets that experience significant fluctuations, similar to stocks. Moreover, the United States is facing inflationary pressures and an increase in fiscal deficits, which could potentially trigger investor concerns about U.S. Treasury bonds.
Especially last weekend, Federal Reserve Chairman Powell expressed at the annual global central bank meeting that the inflation outlook is not optimistic, and there may be a need for further interest rate hikes in the future. This could drive the yield on the U.S. 10-year Treasury bonds to continue rising to 4.5%, which means there is still a significant room for the prices of U.S. Treasury bonds to fall.
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Many financial institutions in the United States have also begun to issue warnings to their clients about the crisis in the U.S. Treasury bond market. Recently, the large Wall Street investment bank, Bank of America, has expressed its view that unless the Federal Reserve begins to cut interest rates, all investors who are optimistic about U.S. Treasury bonds this summer are destined to be disappointed.
Bank of America stated that investors will face great pain until the Federal Reserve truly changes its stance. However, it currently appears that the Federal Reserve may further raise interest rates, which means that the possibility of the Federal Reserve cutting interest rates before the end of this year is almost zero.
If the interest rate hike becomes a reality, it is expected that the yield on the 10-year Treasury bonds may further rise to 4.5%. This will put greater pressure on the U.S. Treasury bond market, implying that the prices of U.S. Treasury bonds may continue to fall.
After a significant decline last year, the prices of U.S. Treasury bonds have rebounded noticeably this year, providing some compensation for investors who held onto their bonds without selling and incurred losses last year.
However, there are also many investors who bought into U.S. Treasury bonds this year after seeing their prices rise. Their fundamental logic is that they expect the Federal Reserve to stop raising interest rates and soon shift to cutting rates. A policy shift by the Federal Reserve would greatly help U.S. Treasury bonds to continue rising.However, during this period, U.S. Treasuries have experienced a noticeable decline, and many investors this year have been caught in a bind.
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Nevertheless, the troubles faced by the U.S. Department of the Treasury are greater than those of U.S. Treasury investors.
The bleakness of the issuance market could very likely lead to a liquidity crisis for U.S. Treasuries. If the market only has sellers and no buyers, the U.S. Treasury market, which exceeds 250 trillion, could face a collapse.
Currently, the total size of U.S. Treasuries has surpassed 32.7 trillion, but the tradable balance in the market is around 250 trillion, and it is this portion of assets that is now facing a liquidity crisis.
However, judging by the operational methods of Yellen and this administration's Treasury Department, they may only be concerned with issuance without considering future repayments.
The future crisis is left for future America and its citizens to bear.
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