All articles tagged with #treasury auctions
Finance leaders are increasingly worried about a potential failure in US Treasury debt auctions, which could lead to a spike in borrowing costs and long-term economic damage, especially if foreign and domestic investors lose confidence amid rising deficits and increased bond issuance from proposed tax and spending bills.
Treasury auctions, which involve the sale of U.S. government bonds to fund operations, are causing concern in the markets due to their increasing size and scrutiny. Previously, it was assumed that investors would buy any number of bonds issued by the government, regardless of the fiscal outlook. However, the sale of $20.8 trillion of new Treasurys in the first 11 months of the year, on track to surpass 2020's record, is testing this assumption.
The annualized interest payments on the US government debt have surpassed $1 trillion, doubling in the past 19 months and equivalent to 15.9% of the entire Federal budget for fiscal year 2022. This increase in debt repayment may lead to renewed selling pressure on US Treasuries and has already driven up bond yields. The worsening metrics highlight concerns about the US fiscal path and the need for increased Treasury coupon auctions and refinancing of climbing maturities.
U.S. stocks remained flat as investors awaited guidance from Federal Reserve policymakers on the central bank's policy path and anticipated a large amount of bond supply hitting the market. Last week's weaker-than-expected U.S. payrolls report led to expectations that the Fed may cut interest rates next year, resulting in the biggest weekly gains for the S&P 500 and Nasdaq since November 2022. Market expectations for a rate cut in May 2024 have grown to over 50%. Investors will be looking for more clarity on the Fed's intentions from officials speaking later in the week. Additionally, the yield on the benchmark ten-year Treasury note reversed course ahead of this week's Treasury auction. Dish Network shares plummeted after missing revenue estimates and Bumble shares fell as the dating app's CEO announced her departure.
The upcoming Treasury auctions this week will be closely watched as they could impact the stock market rally. Last month's auctions were considered a disaster, with poor results and higher rates. This month, the auction sizes have increased, and better auctions could lead to lower rates. The market rallied last week due to smaller refunding sizes, causing short-covering and rate falls. However, rates could rise into these auctions if traders anticipate poor results. The S&P 500 is facing a significant resistance level at 4,375, and its movement this week will provide insights into the market's future direction. If the index fails to break above this level, a retracement lower may occur.
The recent massive stock market rally was driven by a combination of factors, including a decline in interest rates and a lack of Treasury auctions, which triggered a gamma squeeze in the options market. The absence of central banks as buyers of bonds and decreased global liquidity levels have contributed to the decline in rates. However, the rally may not continue with the same vigor as the market is now back into positive gamma territory, which will ease volatility but may cap further gains unless the call wall in the options market moves higher. The upcoming Treasury auctions will be critical and could reintroduce volatility in the market. Overall, the macro backdrop suggests that the economy is slowing, unemployment is rising, and inflation is sticky, which may keep stocks contained from advancing much further.