Why Do U.S. Treasury Auctions Affect Risk Assets?

New Bond Auctions = Sucking Liquidity

U.S. Treasury auctions are a net financing activity, especially in the context of repaying old debt and a continuously expanding fiscal deficit. If investors are not optimistic about current interest rates (expecting future rates to be even higher), they must offer a higher winning bid rate to attract investor participation, which directly increases the Treasury's borrowing costs and raises yields across the entire secondary market.

Rising Yields = Funds Flowing Out of Risk Markets

Bonds become more attractive, drawing funds that would typically be directed towards stocks, cryptocurrencies, and other risk assets into the bond market, particularly sensitive to overvalued assets.

Rising Borrowing Costs = Downward Pressure on Economic Fundamentals

Higher medium- to long-term yields push up corporate financing rates and mortgage rates, which not only suppress corporate profit expectations but also diminish market confidence in future growth.

Additionally, a slightly positive aspect this time is that the proportion of foreign investors buying 20-year U.S. Treasuries has increased slightly, reducing some of the bond market's liquidity drain on domestic U.S. funds.

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