20-Year Treasury Auction Yield Hits Record High; 10-Year Yield Reaches New 20-Year High

By Yang Chen

Pressure continues in the U.S. long-term Treasury market.

On Tuesday, the U.S. Treasury auctioned $13 billion of 20-year bonds, with a high yield of 5.420%, up 21.6 basis points from the previous auction's 5.204%, setting a record high for that maturity, surpassing the 5.245% record set in October 2023.

The bid-to-cover ratio for this auction was 2.57, up from 2.53 in the previous auction.

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

Looking at the investor breakdown, indirect bidders were awarded 52.47% of the securities, down from 62.93% previously; direct bidders received 30.68%, up from 24.59%; and primary dealers took 16.85%, also up from 12.49%.

Therefore, based solely on the bid-to-cover ratio, this auction cannot simply be defined as "weak demand." The 2.57 bid-to-cover ratio is even slightly higher than the previous auction, but the sharp rise in the awarded yield and the notable decline in indirect bidders' share still reflect that the market needs higher yields to attract funds into long-term Treasuries.

On Tuesday, the 10-year Treasury yield broke above 5% again, reaching as high as 5.045%, the highest since 2007.

JPMorgan's survey of Treasury clients showed that in the week ending Sept. 14, client short positions jumped by 10 percentage points, while neutral positions fell by 8 percentage points, pushing net long positions to their lowest level in about four months.

10-Year Treasury Yield Nears 20-Year High

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

U.S. Treasury Secretary Janet Yellen said at a congressional hearing on Tuesday that the rise in Treasury yields is due to "global factors."

On Tuesday, amid a sell-off in government bond markets of major global economies, the 10-year Treasury yield hit its highest level since 2007.

Analysts believe the rise in Treasury yields is related to higher oil prices, market expectations that the Federal Reserve will raise rates this week, competition for funds from AI spending, and concerns about the direction of U.S. fiscal policy.
Yellen acknowledged at the hearing that the rise in the 10-year Treasury yield reflects factors including "the need to address the deficit."

JPMorgan Client Short Positions Jump 10 Percentage Points in a Week; Net Longs Hit Four-Month Low

JPMorgan's Treasury client survey showed that in the week ending Sept. 14, client short positions surged by 10 percentage points, the fastest weekly increase since early 2025, with most of the shift coming from an 8 percentage point drop in neutral positions, bringing overall net long positioning to its lowest level in about four months.

Futures market data also corroborate this trend. CME Group positioning data showed that around the time of last week's higher-than-expected inflation data, investors significantly increased short positions in Treasury futures.

The swaps market is currently pricing in about 50 basis points of tightening by the Federal Reserve for the rest of the year, including the September meeting.

Citi strategist David Bieber said in a report: "Over the past week, the short base has built up quickly as the market chased higher yields." He added that short positions are "at tactically extreme levels."

Rising Long-Term Treasury Yields Will Affect Real Economy Financing Costs and Weigh on Risk Assets

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

The U.S. 30-year fixed mortgage rate has already been affected by the 10-year Treasury yield breaking above 5%, posing higher financing costs for the housing market recovery.

For the stock market, rising long-term Treasury yields also mean a higher discount rate used in valuations, which in theory is particularly unfavorable for growth stocks that rely on future earnings expectations.

However, U.S. stocks are still supported by corporate earnings growth and the AI investment boom, and have not yet shown significant risk-off sentiment consistent with the bond market volatility.