The straw that broke the camel's back

Source: The Greatest Trader

Fall, fall, fall, an auction result triggered a chain collapse of the market.

The US dollar fell;

US stocks fell;

US bonds fell.

The straw that broke the camel's back appeared - the auction result of the US 20-year Treasury bond was not good, the bond market collapsed again, and triggered a sharp drop in the stock market.

Last night, the U.S. Treasury Department issued $16 billion in 20-year Treasury bonds, with a winning yield of 5.047%. This was the only second 20-year Treasury auction with a yield of more than 5%, 24 basis points higher than 4.810% in April.

First, from the perspective of market impact, the "sell the United States" transaction is back. The U.S. dollar, U.S. stocks, and U.S. bonds fell simultaneously - the U.S. dollar fell for three consecutive days, the 10-year U.S. Treasury bond yield broke through 4.6%, and the U.S. stock market also saw the largest single-day drop in nearly a month.

Secondly, the failure of the 20-year Treasury auction is not terrible. What is terrible is that it is linked to Moody's downgrade of the US rating. The market's concerns about the US fiscal situation even surpass the concerns about the trade war. Whether it is real credit concerns or concerns about the "instability" of the Trump administration, global investors are no longer keen to lend money to the United States, and the trend of de-dollarization has quietly accelerated. This crisis of confidence has just begun.

Third, judging from the market readings alone, the 10-year US Treasury yield breaking through 4.6% triggered a round of selling. If it further breaks through 4.7%, it will trigger a larger round of selling. Such critical points are often rooted in the psychological expectations of technical traders. The vicinity of 4.75%~4.80% often corresponds to historical highs and futures basis structures, and a larger space will be opened after the breakthrough. We recently warned that the ultimate goal of Wall Street traders' bets is that the 10-year US Treasury yield will reach 5%. If this is true, the US stock market still has a lot of gains to give up.

Fourth, gold has passively risen to $3,300, and the market has shifted from risk-on mode to risk-off mode - when "selling the United States" is more like a sell-off of risky assets after the double kill of stocks and bonds - funds are not only leaving US stocks and US bonds, but also leaving the US dollar, reflecting a collective flight from US "whole assets" rather than single assets.

Fall, fall, fall - this is not only a series of declines in numbers, but also a severe torture of US financial credibility and the global pricing system. If even stable long-term government bonds cannot get enough demand, the real "crushing moment" of the financial market may be closer than we think. In the next few days, every percentage point of the 10-year yield will become a key touchstone for whether the market will regain confidence.