The 20-year US Treasury bond auction met with a cold reception, causing a simultaneous decline in US stocks, bonds, and currency.

During US stock market trading on Wednesday (May 21), the auction of 20-year US Treasury bonds faced sluggish demand, leading to short-term declines in US Treasuries, US stocks, and the US dollar. Last week, Moody's downgraded the US sovereign credit rating, drawing significant attention to this auction.

According to results released by the US Treasury Department, the final awarded yield for the 20-year US Treasury bonds was 5.047%, approximately 24 basis points higher than the 4.810% of the previous month. This marked only the second time in history that the awarded yield exceeded 5%. It was also approximately 1.2 basis points higher than the pre-auction yield of 5.035%, representing the largest tail spread since December last year.

The bid-to-cover ratio also performed poorly, declining from 2.63 times in April to 2.46 times, the lowest level since February, reflecting reduced buyer interest in the bonds.

The auction results also showed that direct bidders, including hedge funds, pension funds, mutual funds, insurance companies, banks, government agencies, and individuals, received an allocation ratio of 14.1%, higher than the 12.3% of the previous month.

Among indirect bidders, foreign buyers secured a 69.02% share, down from 70.7% in April. Primary dealers, responsible for buying up the remaining Treasuries, obtained a 16.9% share, slightly lower than the 17.0% of the previous month.

Analysts stated that this was indeed a "poor" auction. While not "catastrophic," it was poor enough to cause a significant decline in the prices of long-term US Treasuries.

Market data showed that the yield on 20-year US Treasuries once rose to 5.126%, while the yield on 30-year US Treasuries exceeded 5%, reaching a high of 5.098%, both hitting their highest levels since November 2023.

The US dollar index fell below the 100 mark, reaching a low of 99.32. The three major US stock indices collectively declined, all falling by more than 1%.

Michael O'Rourke, Chief Market Strategist at JonesTrading, commented, "The auction results for the 20-year Treasury bonds have exacerbated the weakness in the bond market. This has been the theme of the week since Moody's downgraded the rating."

As previously mentioned by Cailian Press, this was the first long-term Treasury auction conducted by the US Treasury Department since Moody's became the third and final major rating agency to remove the US's top AAA credit rating last Friday.

Moody's also believes that the US government's current fiscal spending plan will not lead to substantial reductions in mandatory spending and deficits in the future. Earlier in the day, the White House increased pressure on congressional Republicans, urging lawmakers to approve Trump's tax bill as soon as possible.

O'Rourke stated, "In this environment, the deficit/budget battle will also intensify."

Steven Mnuchin, the Treasury Secretary during Trump's first term, said that he was more concerned about the country's widening budget deficit than the trade deficit, and he also called on Washington to prioritize fixing its fiscal situation.

"I am very concerned. Therefore, I hope we take more measures to cut spending—this is very important."