30-year Treasury yield breaches 5% level as US debt demand dims

Treasuries extended losses on soft demand for a sale of 20-year bonds above 5%, illustrating the anxiety among investors over holding long-term US debt. 

The declines on Wednesday sent yields higher across maturities after the $16 billion auction, with the 30-year rate higher by 11 basis points to 5.08%. The 10-year rose 10 basis points to 4.59%.

“The auction didn’t go well,” said Kathy Jones, chief fixed income strategist at Charles Schwab. “That’s not surprising given that yields have been pushing higher not just here, but globally.”

Investor attention had been on the sale of 20-year Treasuries amid the recent increase in yields. 

The offering was awarded at 5.047% compared with a 5.035% yield in trading just ahead of the 1 p.m. New York time bidding deadline — indicative of softer-than anticipated demand. Its 5% coupon rate is the highest for a 20-year since the tenor was reintroduced in 2020.

“One of the things that’s particularly challenging about the long end is that it is much more dependent on supply versus demand,” said Brian Quigley, senior portfolio manager at Vanguard, before the sale.

In the absence of major economic data so far this week, selling pressure on Treasuries has reflected anxiety over the US fiscal outlook as Congress negotiates a budget deal that includes President Donald Trump’s tax cuts being extended. 

The long end of the Treasury market has led losses after Moody’s Ratings joined other major rating companies in downgrading the US as a top-notch sovereign credit.

“The term premium needs to increase to entice buyers to step into the very heavy supply,” Andrzej Skiba, head of BlueBay US fixed income at RBC Global Asset Management, said. “And until you get a clear picture on the deficit outlook, it’s unlikely those pressures will just go away.

In Treasury options activity this week, traders have been hedging against higher long-end yields, including some wagers targeting the 10-year rate rising above 5%. The yield on those benchmark notes was up more than five basis points to 4.54% on Wednesday.

Premiums to protect against bigger losses in long-dated Treasuries are at their highest level since April, when markets were shaken by the potential economic fallout from Trump’s aggressive trade policies.

Overall, bond investors are demanding more compensation to buy longer maturities — and not just for the US. Japanese and UK 30-year yields also have risen sharply this week.

What Bloomberg strategists say...

“Bonds have few bullish catalysts Wednesday. With price action having the hallmarks of continued deficit spending angst and supply jitters, yields on 30-year bonds can continue to rise.”

— Alyce Andres, US Rates/FX Strategist, Chicago