First, consider the auction of 10-year bonds worth $39 billion, conducted by the U.S. Treasury at around 00:00 Hong Kong time on Thursday (8th). The yield settled at 5.3%, the highest level since November 2000. Additionally, one key point worth noting from this auction is that the subscription rate from non-dealer investors reached 97.5%, a historical high. This reflects that as the 10-year yield climbed to 5.3%, investor willingness to purchase 10-year U.S. Treasuries clearly increased.
Next, observe the auction of 30-year bonds worth $22 billion conducted by the U.S. Treasury early this morning (9th) Hong Kong time, which resulted in a yield of 5.618%. Compared to the recent two-day trading level of around 5.7% for 30-year U.S. bond yields, this auction result was notably lower, explaining why this morning in the Asian market, the U.S. 30-year yield remained suppressed around 5.608%, far from the recent 24-year high of 5.7%. It is believed that the results of these two auctions may help limit further near-term increases in U.S. 10-year and 30-year long-term bond yields. However, how long this situation can last is truly questionable.
*U.S. fiscal conditions are deteriorating*
According to estimates from the U.S. Congressional Budget Office (CBO), by the end of the 2026 fiscal year (September 30), the U.S. government's fiscal deficit will reach as high as $1.993 trillion, an increase of 12% from the 2025 fiscal year and the highest level since 2021. In terms of GDP ratio, the fiscal deficit could rise to 6%, higher than the 5.8% in the 2025 fiscal year. Clearly, Treasury Secretary Bessent's pledge to limit the U.S. government's fiscal deficit to 3% of GDP seems unlikely to be fulfilled. These figures have raised market concerns, primarily because the current U.S. unemployment rate is only 4.2%, historically low; furthermore, even with minor conflicts occurring in Iran without any major incidents, the fiscal deficit continues to widen, deepening market concerns about U.S. fiscal management. Finally, according to CBO estimates, this fiscal year's interest payments on debt could increase by 11% compared to the $1.1 trillion total in the 2025 fiscal year, primarily due to increased total debt and rising interest rates.
On September 9, Trump claimed that if his Republican Party retains control of both the Senate and House of Representatives after the November midterm elections, he would distribute a special $5,000 dividend to every American adult. With the November 3 midterm elections approaching, the market is now watching whether Trump will implement this plan. If this pledge is fulfilled, the market estimates the amount involved will reach $1 trillion. Wen Cheuk-Pei, Chief Market Strategist, Hang Seng Bank
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