Trading is light before the U.S. debt auction, with weak demand casting a shadow over the market.

On Wednesday, the price of US Treasury bonds fell slightly, ending a three-day upward trend. Recent auctions have shown weakening demand for government bonds, and market focus has shifted to a new round of bond supply. Wednesday's US bond auction will focus on short-term bonds, including $70 billion in new 5-year Treasury notes. This maturity type has become a "sweet spot" for investors due to its low sensitivity to monetary and fiscal policies compared to shorter and longer-term bonds. The 2-year Treasury note auction on Tuesday also saw strong demand. The yield on the benchmark 10-year US Treasury bond rose 3 basis points to 4.47%. Despite being 15 basis points lower than the peak last week, it may record the first monthly decline of the year due to concerns about the global fiscal outlook. Justin Onuekwusi, Chief Investment Officer at St. James's Place, said, "From a yield perspective, bonds are currently attractive." He added that the Trump administration's large-scale tax cuts, trade tariffs, and political uncertainty would continue to cause market volatility. Demand for Japan's 40-year government bond auction on Wednesday hit its lowest level since July last year. Following a series of soft bond auctions in both the US and Japan, global government bond issuances are under close scrutiny. There is ample evidence to suggest that Asian and European investors are significantly rebalancing their portfolios that were previously heavily tilted towards US bonds. The unpredictable policies of the Trump administration and their impact on the US economy have triggered significant outflows of funds in "sell America" trades. Last week, the yield on the 30-year US Treasury bond reached 5.15%, the highest level since October 2023. The yield spread between 5-year and 30-year Treasury bonds has surpassed 90 basis points, nearing the highest level since 2021. Investors are also eagerly awaiting the release of the minutes from the Federal Reserve's May 6-7 meeting. At this meeting, the Fed kept interest rates unchanged. Bloomberg economist Anna Wong and others have pointed out in recent reports that the market is watching whether the meeting minutes will revise upward the Fed's core inflation and unemployment rate forecasts for 2025. Based on swap contract pricing, the money market expects a 70% probability of a 25 basis point rate cut at the Fed's September meeting.