The U.S. Treasury Department is set to auction off $13 billion worth of 20-year Treasury bonds on Wednesday, which could have implications for the stock market. This auction is part of the government’s plan to borrow $852 billion in the fourth quarter, as it aims to rebuild its cash reserves after depleting them during the debt ceiling standoff.
According to Sam Millette, a fixed income strategist for Commonwealth Financial Network, this upcoming auction will serve as a test of investors’ confidence in the U.S. government. However, there are concerns that the auction may not generate strong demand, as previous auctions for long-term bonds have been relatively weak.
One potential risk of the higher bond issuance is an increase in supply, which could raise yields in the future and lower the value of the bonds. It’s important to note that bond prices move inversely to yields. Additionally, yields on long-dated debt can rise due to macroeconomic uncertainties or even stronger-than-expected economic growth.
On Tuesday, September retail sales data showed that consumer spending remains resilient, despite the Federal Reserve’s efforts to ease demand and cool inflation. When combined with ongoing tensions in the Middle East, labor strikes, and concerns about oil prices, there are potential long-term investment risks on the horizon.
Bearish Risks Further Out the Curve
Avoiding the Long End
Potential for a Different Outcome
The Impact on Yields and Stocks
Who knew a typically boring Treasury auction could be so exciting?
