Pressure on the U.S. long-term Treasury market continued Tuesday.
The U.S. Treasury sold $13 billion of 20-year bonds, with the auction clearing at a high yield of 5.420%. That was up 21.6 basis points from the previous 20-year auction at 5.204% and above the prior record of 5.245% set in October 2023, marking a new all-time high for the maturity.
The bid-to-cover ratio was 2.57, compared with 2.53 at the previous sale. The result suggested that investors were still willing to absorb long-dated U.S. government debt, but only at higher yields. The report pointed to inflation, energy prices, fiscal funding needs and the Federal Reserve’s rate path as factors pushing up the risk premium required on the long end.
By buyer category, indirect bidders took 52.47% of the auction, down from 62.93% previously. Direct bidders were awarded 30.68%, up from 24.59%, while primary dealers took 16.85%, compared with 12.49% at the prior sale.
For that reason, the auction cannot be described simply as weak demand based on the bid-to-cover ratio alone. At 2.57, the ratio was slightly better than the prior result. Even so, the sharp rise in the stop-out yield and the drop in the share taken by indirect bidders showed that the market needed higher yields to draw money into longer-dated Treasuries.
10-year Treasury yield reaches another two-decade high
The 20-year sale came during a volatile stretch for the long end of the U.S. Treasury market. On Tuesday, the 10-year Treasury yield moved back above 5% and briefly reached 5.045%, its highest level since 2007.
U.S. Treasury Secretary Bessent told a congressional hearing on Tuesday that rising bond yields were due to 「global issues」. He also said at the hearing that the rise in the 10-year yield reflected factors including 「the need to address the deficit」.
Tuesday’s move came as bond markets across most major global economies sold off. Analysts linked the rise in Treasury yields to higher oil prices, expectations that the Federal Reserve would raise its policy rate this week, capital competition tied to artificial intelligence spending, and concern over the U.S. fiscal outlook.
JPMorgan survey shows a jump in client shorts
A JPMorgan Treasury client survey showed that short positions jumped 10 percentage points in the week ended Sept. 14, the fastest one-week increase in bearish positioning since the start of 2025. Most of that move came from an 8 percentage point drop in neutral positions, and overall net longs among clients fell to about the lowest level in four months.
Futures market data pointed in the same direction. CME Group positioning data showed that investors added a large number of short Treasury futures positions around the release of stronger-than-expected inflation data last week.
The swap market is now pricing in about 50 basis points of tightening over the rest of the year, including the September meeting.
Citigroup strategist David Bieber wrote in a report: 「Over the past week, as the market chased higher yields, the short base built rapidly.」 He added that short positioning was 「tactically extreme」.
Higher long-term yields feed into financing costs
Rising long-dated Treasury yields can pass through to the real economy through mortgages, corporate bonds and other credit markets.
U.S. 30-year fixed mortgage rates have already been affected by the 10-year Treasury yield moving above 5%, placing the housing market recovery under pressure from higher borrowing costs.
For equities, higher long-term Treasury yields also raise the discount rate used in valuations, which in theory is especially unfavorable for growth stocks that rely on expectations for earnings further out.
At the same time, U.S. stocks are still being supported by corporate earnings growth and the AI investment boom, and have not yet shown the kind of clear risk aversion seen in the bond market.