After the disappointing auction of a 30-year Treasury bond last week, the highly anticipated 20-year-old US Treasury bond has ended up setting a staggering boom in the stock and bond markets, shooting waves of shock across the financial system.
The US government finally sold the 20-year Treasury bond for a much lesser yield than expected by the experts, which ended up attracting investors eager to seek the security and stability of bonds. The investors now started to reconsider their risk tolerance and welcomed the market optimism as the demand for bonds increased.
The auction of 20-year debt (valued at approximately $16 billion) ignited major indices such as the S&P 500, which finished its market correction, and Dow Jones, which climbed 200 points. However, the Nasdaq 100 is the one that rose the most. Nasdaq 100 finished at its 22-month high, with Microsoft and Nvidia enjoying their monstrous gains.
Although the Federal Reserve officially said that it might keep interest rates high, Wall Street investors are optimistic that inflation is finally coming down. With the success of the 20-year Treasury auction, hope and faith in the overall economic recovery have reignited.
The investors on Wall Street were nervous before the auction due to the short sale window, crediting the “Thanksgiving Holiday”. However, believing that the Federal Reserve is in no mood to raise interest rates, at least in 2023, investors came together and turned their interest in US government securities.
Jack McIntyre, a portfolio manager at a leading US-based investment management firm, said, “It is a solid auction for a nervous market,” and Wall Street couldn’t agree more.
In just 20 days of November, the US securities market faced the utmost disappointment in the first half and, afterward, a rally of joy. The 20-year Treasury Auction elevated the market and whitewashed the disaster of the 30-year Treasury Auction (Valued at approximately $26 billion).
Thanks to the success of the 20-year US Treasury auction, the yield of the 10-year Treasury bond also slipped to an official 4.40% compared to the previous 4.44%. Along with the two-year yield, which slipped from 4.90% to 4.89%,
The US Treasury auctions share a complex relationship with the bond and stock markets. The US Treasury auctions are powerful enough to shake the economy’s total interest rates. A feasible demand for the US Treasury, along with lower yields, could lower the interest rates around the economy, which directly results in bond and stock market rallies. The same situation happened with the current 20-year US Treasury auction. Moreover, heavy bidding from investors could also result in lower yields, but only if the demand for bonds is strong.
In conclusion, investors are now confident after a rough disappointment, the market is heading upward, and belief in economic recovery is still active and alive. If the Fed keeps the rates still, the US securities market might rise to new heights and continue with green candles.