The 20-year U.S. Treasury auction yield reached a historic high, and the 10-year U.S. Treasury yield hit a new 20-year high again

Author: Yang Chen
The pressure on the U.S. long-term Treasury bond market continues.

On Tuesday, the U.S. Treasury Department auctioned $13 billion in 20-year bonds, with the winning yield reaching 5.420%, an increase of 21.6 basis points from the previous auction's yield of 5.204%. This marks a historical high for the yield on bonds of this duration, surpassing the record of 5.245% set in October 2023.

The bid-to-cover ratio for this auction was 2.57, higher than the previous auction's ratio of 2.53.

The results of this auction indicate that investors are still willing to take on U.S. long-term government debt at higher yields, but under the combined effects of inflation, energy prices, fiscal financing needs, and the Federal Reserve's interest rate path, the risk premium demanded for long-term U.S. Treasuries is rising.

From the perspective of investor structure, the allocation ratio for indirect bidders was 52.47%, down from 62.93% in the previous auction; the allocation ratio for direct bidders was 30.68%, up from 24.59% in the previous auction; and the allocation ratio for primary dealers was 16.85%, also higher than the previous 12.49%.

Therefore, purely from the bid-to-cover ratio, this auction cannot be simply defined as "weak demand." The bid-to-cover ratio of 2.57 is even slightly higher than the previous auction. However, the significant rise in the winning yield and the noticeable decline in the allocation ratio for indirect bidders still reflect that the market requires higher yields to attract funds into long-term U.S. Treasuries.

On Tuesday, the yield on the 10-year U.S. Treasury bond once again surpassed 5%, reaching as high as 5.045%, the highest point since 2007.

A survey of Treasury clients by JPMorgan shows that as of the week ending September 14, client short positions jumped by 10 percentage points, while neutral positions fell by 8 percentage points, bringing net long positions down to their lowest level in about four months.

10-Year U.S. Treasury Yield Hits Nearly Two-Decade High

At the time of this 20-year bond auction, the U.S. long-term Treasury bond market is experiencing significant volatility.

U.S. Treasury Secretary Janet Yellen stated during a congressional hearing on Tuesday that the rise in bond yields is due to "global issues."

On Tuesday, influenced by the bond market crash experienced by most major economies globally, the yield on the 10-year U.S. Treasury bond reached its highest point since 2007.

Analysts believe that the rise in U.S. Treasury yields is related to rising oil prices, market expectations that the Federal Reserve will raise policy rates this week, capital competition brought about by artificial intelligence spending, and concerns about the direction of U.S. fiscal policy.
During the hearing, Yellen acknowledged that the rise in the 10-year Treasury yield reflects factors such as "the need to address the deficit."

JPMorgan Clients' Short Positions Jump 10 Percentage Points in a Week, Net Longs Hit Four-Month Low

The JPMorgan Treasury client survey shows that client short positions surged by 10 percentage points in the week ending September 14, marking the fastest weekly increase in short positions since early 2025, with most of this coming from a decline of 8 percentage points in neutral positions, bringing the overall net long level down to its lowest in about four months.

Futures market data corroborates this. CME Group position data shows that investors added a large number of short positions in Treasury futures around the time of the stronger-than-expected inflation data release last week.

The swap market is currently pricing in that the Federal Reserve will tighten by about 50 basis points for the remainder of the year, including the September meeting.

Citigroup strategist David Bieber stated in a report: "Over the past week, as the market chased rising yields, the short base rapidly accumulated." He added that short positions "are tactically at an extreme."

High Long-Term U.S. Treasury Yields Will Affect Financing Costs in the Real Economy and Suppress Risk Assets

The rise in long-term U.S. Treasury yields will transmit to the real economy through mortgages, corporate bonds, and other credit markets.

The 30-year fixed mortgage rate in the U.S. has already been affected by the 10-year Treasury yield surpassing 5%, which imposes higher financing costs on the housing market recovery.

For the stock market, rising long-term Treasury yields also mean an increase in the discount rate used for valuations, which is theoretically particularly unfavorable for growth stocks that rely on forward earnings expectations.

However, the U.S. stock market is still supported by corporate earnings growth and the AI investment boom, and has not yet shown a clear risk aversion that matches the volatility in the bond market.