The U.S. Treasury market is facing new challenges against a backdrop of rising global geopolitical risks. This week, the U.S. Treasury Department will auction 10-year and 30-year bonds, with market focus centered on whether overseas investor demand continues to weaken. Previous indicators suggest that foreign investor interest in U.S. Treasuries has cooled noticeably following U.S. military action against Iran. Although Tuesday's 3-year Treasury auction performed solidly, alleviating some concerns about rising financing costs, investors remain cautious towards medium- and long-term bonds. Influenced by a temporary ceasefire agreement, Treasury yields have recently retreated, but the expected yield for the 10-year note may still be higher than levels seen at auctions since last July, indicating demand has not fully recovered.
U.S. Treasury data shows that the proportion of bonds allocated to foreign and international accounts dropped significantly across multiple auctions held in the first half of March. The allocation ratio for 3-year and 10-year notes to overseas buyers fell to its lowest since last October, while the ratio for the 30-year bond hit its lowest since last July. Concurrently, the value of U.S. Treasuries held in foreign official and international accounts at the Federal Reserve has decreased by approximately $66 billion since the outbreak of conflict. This trend further reinforces the market's view of weakening overseas demand.
Analysts point out that surging oil prices may be a key factor. As major global oil importers, countries like Turkey, India, and Thailand may need to sell U.S. Treasuries to raise cash amid rising energy costs, thereby putting pressure on demand. Beyond overseas factors, increased overall market volatility is also a significant reason for weak demand. Since March, driven by oil price increases boosting inflation expectations, the U.S. Treasury market has experienced its largest decline in nearly a year, while market expectations for Federal Reserve rate cuts within the year have cooled significantly. Institutional views suggest that in a high-volatility environment, nearly all types of investors, not just foreign ones, are becoming more cautious, leading to generally poor auction subscription rates.
From a longer-term perspective, the share of foreign capital in the U.S. Treasury market has declined noticeably. Data shows that as of January this year, foreign investors held approximately $9.3 trillion in U.S. Treasuries, accounting for about 30% of the total $31 trillion market size; this proportion was as high as 56% in 2008. Furthermore, cross-border capital flow data also indicates that since the U.S. introduced tariff policies disrupting global trade last April, foreign investor allocation to U.S. Treasuries has shown a continuous downward trend, with holdings of short-term, cash-like securities seeing a pronounced reduction.
However, the market remains divided on whether this trend constitutes a "structural shift." Some believe it may merely be a short-term reaction to the high inflation environment and U.S. policy uncertainty, rather than the beginning of a long-term demand decline. Notably, as yields retreated after hitting a阶段性高点 in late March, market sentiment has shown some recovery. Some institutions argue that current interest rate levels are already attractive, and as investors begin to price in risks of both inflation and slowing economic growth, it may help improve the performance of this month's Treasury auctions. Additionally, the relationship between oil prices and short-term interest rates is changing; the market is no longer viewing rising oil prices solely as an inflationary pressure but is also starting to focus on their potential dampening effect on economic growth.
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