Trump's agenda faces a $22 billion test from markets

CNN

a day ago

Standard, boring bond auctions are drawing the attention of investors around the globe.
The Treasury Department on Thursday will sell $22 billion worth of 30-year government bonds, in what will serve as a gauge of investors' appetite for US debt. All eyes are on whether there is weak demand, particularly from foreign investors.
The Treasury auction, which is a regularly scheduled event, has become a closely watched barometer for how Wall Street is feeling about the Trump administration's policy agenda. A poor auction could reignite jitters about America's debt burden, President Donald Trump's 'One Big, Beautiful Bill Act' and the ability for lawmakers to get the country's finances in order.
If there is weak demand for 30-year bonds at Thursday's auction, that would push yields higher. Bond yields and prices have an inverse relationship. When there is strong demand for bonds, prices rise and yields fall. Vice versa, when there is weak demand for bonds, prices fall and yields rise.
Higher yields would squeeze the government with higher borrowing costs. Treasury yields are also benchmark interest rates for the economy, and higher yields can mean higher borrowing costs for consumers on everyday items including auto loans and credit cards.
Long-term US debt, which is usually considered the safe, risk-free corner of the market, has come under scrutiny as Trump's tax bill is set to add to the federal debt burden.
'The idea that the US fiscal position is unsustainable over the long run has been frequently noted for years, but it has taken the current set of circumstances to get market participants to begin pushing back,' John Canavan, lead US analyst at Oxford Economics, said in a Wednesday note.
Yields on 30-year Treasury bonds have soared this year as investors have demanded more compensation for what is looking like a riskier long-term loan to the US government. These concerns were exacerbated in May after Moody's downgraded the US, stripping the nation of its last perfect credit rating.
'The Moody's downgrade occurred as the ability to easily finance growing deficits increasingly comes into question,' Canavan said. 'Trump's tariff decisions are likely to raise inflation over the near term, while lowering economic growth and leading foreign investors to question the safe-haven allure of Treasury debt.'
This is the first 30-year Treasury auction since Wall Street has begun focusing on the details of Trump's mega bill and the deficit, making it an important gauge of sentiment, Collin Martin, a fixed income strategist at Charles Schwab, told CNN.
'There's a concern that yields might need to rise to attract more and more investors to keep buying,' Martin said.
'If it's a weak auction, we'll probably see yields rise relatively sharply, because that might spook investors,' Martin added, 'and on the flip side, if it ends up being a pretty good auction, that would probably allow the markets to kind of breathe a sigh of relief that, okay, there is enough demand.'
There is robust demand for shorter-term Treasuries like 10-year bonds, according to Chip Hughey, managing director for fixed income at Truist Advisory Services. An auction for 10-year Treasuries on Wednesday saw strong demand both for domestic and global investors.
Yet investors have shown hesitancy about longer-duration bonds like the 30-year bond, Hughey said.
Investors are increasingly uncertain about the long-term outlook for the US debt burden, giving them pause about the risk associated with loaning money to the government over a longer period.
'There certainly is a little bit of hesitancy about taking on a great deal of duration, just given the uncertainty around trade policy and deficits, and also what that would mean for your future debt supply,' Hughey said. 'The 30-year reflects the uncertainties around those more structural questions around budget deficits and the US debt load going forward.'
In May, the 30-year yield spiked to its highest level since 2023 after a Treasury auction for 20-year bonds that saw weak demand.
Pacific Investment Management Company, a global fixed income firm, said in a Tuesday report that bonds still look relatively attractive and affordable compared to stocks. However, Pimco expects to focus and be 'overweight' to 5- and 10-year bonds, while being less focused and 'underweight' to longer-term bonds.
Martin at Charles Schwab said that while concerns about the deficit linger, investors are also assessing factors like inflation and the path of potential Federal Reserve rate cuts. The latest data showed that consumer prices cooled more than expected in May. Fixed income assets like bonds can become more appealing when inflation is cooling.
'We still find yields pretty attractive, and our outlook on the safety of US Treasuries hasn't changed,' Martin said.
Elsewhere in markets, US stocks opened lower on Thursday. The Dow was lower by 250 points, or 0.6%. The broader S&P 500 fell 0.3% and the tech-heavy Nasdaq Composite slid 0.25%.
The S&P 500 is hovering near an all-time high, but has stalled in recent trading and is coming off a day in the red.
The US dollar broadly weakened on Thursday as investors wrestle with continued tariff uncertainty. The US dollar index, which measures the dollar's strength against six major foreign currencies, tumbled almost 1% and fell to its lowest level since 2022.
This is a developing story and will be updated.