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Continuous Treasurys rose on Monday following a hopeful $16 billion auction of 20-year Treasury notes, an event that investors had previously ignored but had begun to actively scrutinize in recent months due to rising Treasury rates.
Before the auction finished at 1 p.m. ET, the highest yield on Treasurys auctioned Monday was 4.78%, 3 basis points lower than the secondary market rate on a 20-year bond.
This shows that purchasers at Monday's auction were willing to spend more than the market expected.
Following the auction results, the yield on the Treasury's benchmark 10-year note declined approximately 5 basis points to around 4.41%. The S&P 500 index finished 0.7% higher on Monday.
Treasury rates soared and US equities plummeted less than two weeks earlier following a comparable $24 billion auction of 30-year Treasury bonds. When that sell happened on Nov. 9, the 10-year yield jumped 11 basis points to 4.63%, while the S&P 500 Index fell 0.8%, capping an eight-day winning streak.
Bond rates have fallen since then, while the S&P 500 has risen 4.6%.
The United States' debt and interest costs are increasing. Concentrate on Auctions
The United States Treasury holds bond auctions on a regular basis to finance new debt and refinance current commitments. For many years, such auctions drew little attention from the financial markets.
However, in 2023, this has changed.
Following the Federal Reserve's recent interest rate rises to combat inflation, the benchmark 10-year yield has reached its highest level since 2007.
Meanwhile, Congress has failed to resolve economic issues amid standoffs over the US debt ceiling and the fiscal budget for 2024, as the US budget deficit has more than quadrupled to $2 trillion.
To cover the growing deficit, fresh Treasury debt must be issued. At the same time, interest rates on current debt have risen significantly as a result of the Fed's rate rises.
Net interest costs for the Treasury hit $659 billion in the fiscal year ending September 30, up 39% over the previous fiscal year. Its interest payments have nearly quadrupled in the last three years, and it now accounts for the fourth-largest financial outlay of the federal government, after only Social Security, Medicare, and national military.
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