Author: Casey Wagner, Blockworks; Compiled by Wu Zhu, Jinse Finance
The U.S. Treasury Department released its quarterly refunding statement this week. As Felix mentioned yesterday, officials will announce the debt issuance plan for the next quarter.
The latest statement says the Treasury will "maintain a stable auction size at least in the coming few quarters." U.S. Treasury yields have therefore declined. On Friday, the 10-year Treasury yield hovered around 4.5%, while the 2-year Treasury yield rose to 4.28%.
Normally, a rise in yields means a drop in stock prices, as we saw in 2022 when the 10-year Treasury yield rose above 4%, and the S&P 500 index fell nearly 20% by year-end.
In 2023, yields have been rising for much of the year, and the U.S. stock market has as well. But notably, the S&P 500 index doubled its annual gain in the last quarter of 2023, when the 10-year Treasury yield fell 0.5%. 2024 has largely followed the same pattern.
Okay, history lesson over. Now back to the present. There's no reason to think the market can't maintain momentum with yields in the 4% range, but if yields rise too much, recession fears will resurface, and stocks will fall.
The outlook for U.S. Treasury yields is uncertain for a few reasons.
First, the Federal Reserve has paused its rate-cutting cycle, and who knows how long that will last. Additionally, inflation remains difficult to tame. Heightened global trade tensions and higher tariffs on U.S. imports (if more broadly implemented) could also impact economic growth or at least growth expectations.
Then there's the new leadership at the Treasury Department. Treasury Secretary Scott Bessent has openly expressed dissatisfaction with how his predecessor, Yellen, handled things, namely her choice to rely primarily on short-term securities for financing.
In short, it's all up in the air.
