A straw that broke the camel's back for the United States

Source: The Greatest Traders

Drop, drop, drop, an auction result triggered a chain collapse in the market.

US Dollar, down;

U.S. stocks fell;

U.S. bonds, down.

The straw that broke the market's back has appeared - the results of the 20-year U.S. Treasury auction were poor, causing the bond market to collapse again and triggering a significant 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 is only the second time that the yield has exceeded 5% in a 20-year bond auction, which is 24 basis points higher than the 4.810% in April.

First of all, the "sell America" trade is back in terms of market impact. The U.S. dollar, U.S. stocks, and U.S. Treasuries fell simultaneously - The U.S. dollar fell for three consecutive days, the 10-year U.S. Treasury yield exceeded 4.6%, and the U.S. stock market also posted its biggest one-day drop in nearly a month.

Secondly, the failure of the 20-year Treasury auction is not terrifying; what is terrifying is the connection to Moody's downgrade of the U.S. rating and the market's concerns about the U.S. fiscal situation, which even surpass those regarding the trade war—whether it is genuine credit doubts or concerns about the "instability" of the Trump administration, global investors are no longer keen to lend money to the U.S., and the trend of de-dollarization is quietly accelerating. This crisis of confidence has only just begun.

Third, looking at market readings alone, a break in the 10-year Treasury yield above 4.6% has triggered a sell-off, and a further break above 4.7% will trigger a larger sell-off, and such tipping points are often rooted in the psychological expectations of technical traders. The vicinity of 4.75%~4.80% often corresponds to the historical high and the futures basis structure, and a breakthrough will open up more space. We recently warned that Wall Street traders are betting that the ultimate goal is for the 10-year Treasury yield to reach the 5% level. If that's the case, the U.S. stock market still has a lot of gains to give back.

Fourth, gold has passively risen to $3,300, and the market has shifted from a risk-on mode to a risk-off mode—selling off risk assets in response to the double hit on stocks and bonds during the "Sell America" phase. Funds are not only leaving U.S. stocks and bonds but also the dollar, reflecting a collective flight from U.S. "overall assets" rather than a single asset.

Fall, fall, fall – this is not only a series of declines in numbers, but also a harsh torture of the financial credibility of the United States and the global pricing system. If there is not enough demand for stable long-term Treasuries, the real "crushing moment" of financial markets may be closer than we think. In the coming days, every percentage point increase in the 10-year yield will be a key litmus test of whether the market regains confidence.