[Source/Observer Network, Lin Chenli] According to reports by The Wall Street Journal of the United States and the Financial Times of the UK, on May 21st local time, affected by US President Trump's attempt to promote a comprehensive tax cut bill, the performance of the US Treasury auction was poor, highlighting investors' anxiety about the US fiscal deficit. As a result, US Treasuries and stocks fell sharply during the session.

The US Treasury conducted a 20-year bond auction that day, eventually selling $16 billion worth of bonds at a high winning bid rate of 5.047%, which was about 24 basis points higher than the 4.810% in the previous month, and about 1.2 basis points higher than the pre-auction rate of 5.035%. This is the highest rate since the resumption of auctions for this maturity in 2020. The bid-to-cover ratio also performed poorly, declining from 2.63 last month to 2.46, reflecting weak demand for US bonds in the market.

After the auction results were released, US Treasuries were sold off, and yields rose rapidly. By the close of trading that day, the yield on the 10-year US Treasury note rose to 4.595%, the highest level since February; the yield on the 30-year US Treasury note rose to 5.089%, the highest level since October 2023.

30-year US Treasury yield trend, The Wall Street Journal

At the same time, stocks also fell in response, with the three major indexes recording their largest single-day decline since April 21st. By the close, the Nasdaq Composite Index fell 1.4%, the Dow Jones Industrial Average fell 1.9%, and the S&P 500 Index fell 1.6%. The decline was widespread, with 10 out of the 11 sectors of the S&P 500 Index falling. Apple's stock price fell 2.3%. Amazon, NVIDIA, and Microsoft's stock prices all fell more than 1%.

Trend of the three major US indexes, The Wall Street Journal

Ian Lyngen, head of US interest rate strategy at BMO Capital Markets, said that day: "The soft performance of the 20-year US Treasury auction, combined with concerns about budget deficits, has led the market to have a tendency to raise yields."

"The market really has no interest in long-term US securities," added Pooja Kumra, an interest rate strategist at TD Securities: "Especially in the current situation in the US, we expect all long-term bond auctions to be closely scrutinized by the market."

Jay Barry, global interest rate strategist at JPMorgan Chase, pointed out: "The stock market is finally beginning to realize the fiscal problems facing the US Treasury market."

As the sell-off occurred, Republican leadership in the US Congress was holding intense talks to push Trump's comprehensive tax cut bill for a vote in the House of Representatives. The bill plans to cut taxes by over $4 trillion over the next decade. Analysts predict that this will increase US debt by at least $3 trillion over the next decade.

Many investors are increasingly concerned about the potential rise in US debt caused by the bill. Last Friday, international credit rating agency Moody's withdrew the US's Aaa credit rating due to high government debt, triggering a wave of US Treasury selling.

The report points out that higher US government deficits mean there may be a need to increase Treasury issuance to fill the gap between spending and revenue, causing some investors to feel uneasy about how much US Treasuries Wall Street can absorb.

Some investors expressed concern about the prospect of stagflation in the US, a combination of low growth and high inflation that has not been seen in decades.

This article is an exclusive contribution from the Observer Network and cannot be reprinted without permission.

Original source: https://www.toutiao.com/article/7507102964339704361/

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