Trump and Bessent under pressure as weak Treasury demand weighs on the S&P 500
Demand for US Treasuries is weakening despite higher yields, draining liquidity from equities and leaving Donald Trump and Scott Bessent with less room for manoeuvre. With 10-year yields near 4.50%, pressure on the S&P 500 may intensify if bond auctions fail to reassure the market.
Market Analyst
FOMC minutes come under closer scrutiny
Minutes from the March meeting of the Federal Open Market Committee are due at 20:00 CET on Wednesday, and the market may focus closely on how policymakers assessed inflation risks at a time of severe oil-market stress. Although the oil futures curve has eased by almost $10 since those projections were made, rate markets have moved in the opposite direction and no longer price a cut by the end of 2026.
Demand for US debt is weakening
The recent rise in Treasury yields appears to reflect more than inflation alone. Deteriorating public finances and higher military spending linked to the Middle East conflict may also be weighing on demand for US government debt.
Recent auctions have shown weaker bid-to-cover ratios even as the Treasury offers higher yields, suggesting real demand is fading and primary dealers are being forced to absorb a larger share of issuance. That has left the market watching the next 10-year and 30-year sales as an important test of investor confidence.
Foreign buyers are stepping back
Foreign demand also appears to be softening. According to the article, China and Japan are both reducing exposure for different reasons, while Federal Reserve custody data suggests that foreign-held securities have fallen by about $40bn since the conflict began.
That shift matters because it leaves the Treasury increasingly dependent on domestic buyers at a time when liquidity is already tight. The article argues that this stress is also visible in gold, which has traded erratically despite the geopolitical backdrop.
The S&P 500 may stay vulnerable above 4.50%
The core market concern is the relationship between 10-year Treasury yields and the S&P 500. When the 10-year yield rises above 4.50%, financial conditions may tighten enough to put renewed pressure on equities and revive what the article describes as the 'TACO trade' - a retreat in Donald Trump's rhetoric when markets come under too much strain.
That leaves the next bond auctions and the tone of the Federal Open Market Committee minutes in sharp focus. If yields stay elevated and demand remains weak, the S&P 500 may find it difficult to absorb the resulting drain on liquidity.
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