119 billion US Treasury long-end auction faces the "holiday test"; how will Waller's "removal of forward guidance" reshuffle the yield curve?

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This week, the U.S. Treasury market will face a crucial stress test after the Independence Day holiday.

The U.S. Treasury Department will complete $119 billion in bond issuance this week, starting with a 3-year Treasury auction on Tuesday, followed by benchmark 10-year and 30-year bond auctions on Wednesday and Thursday, respectively. The main market focus is whether post-holiday investor demand can absorb the long-end supply—Tom di Galoma, Managing Director at Mischler Financial Group, warned that "the probability of 'tails' appearing in multiple auctions is quite high whenever there is a large supply week before or after a holiday." Meanwhile, the release of the Federal Reserve’s June meeting minutes in the middle of the week is expected to become another focal point for the bond market, as investors look to gauge the degree of policy divergence within the committee under new chairman Kevin Warsh.

From a macro perspective, long-dated U.S. Treasuries have been under sustained pressure recently. The Iran conflict has fueled inflation worries by driving up energy prices, and continued fiscal pressure has further suppressed long-end performance. However, on Monday, Brent crude oil fell by about 0.6% to $71.70 per barrel, easing energy-inflation concerns and giving Treasuries a brief boost, with the 10-year yield dropping about 2 basis points to 4.46%.

Holiday Effect Combined with Long-End Supply, Auction Demand Faces Uncertainty

This week’s total Treasury auction amount is $119 billion, with the long-end being the key market focus. According to Bloomberg, long-term Treasuries have been consistently sold off since the Iran conflict began, due to rising inflation expectations caused by higher energy prices and mounting fiscal pressures.

Tom di Galoma remains cautious on demand prospects. He notes that holidays often result in absent market participants; when large supply weeks coincide with holiday effects, the risk of multiple auctions seeing "tails"—meaning actual winning yields are higher than pre-auction yields—cannot be ignored. If this happens, it will directly push up long-end yields and put pressure on investors with heavy positions.

At the same time, Monday’s ISM services data is also worth watching. The June jobs report previously came in much weaker than expected, prompting bond traders to lower their rate hike expectations for this year. If the ISM data also softens, it will provide some support for this week’s auctions.

Warsh’s "Less Forward Guidance" Path, Market Interprets June Meeting Minutes

The Federal Reserve’s June meeting minutes, to be released mid-week, will provide an important window for the market to interpret Warsh's new leadership style.

TD Securities U.S. rates strategist Molly Brooks points out that attention should be paid not only to the degree of internal committee disagreement, but also to the length and language structure of the document itself. "Given Chairman Warsh's intention to reduce forward guidance, the composition and length of the minutes will themselves be used by the market to judge whether this shift has already occurred."

The weakening of forward guidance means that market visibility regarding the future policy path will systematically decline, forcing investors to rely more on high-frequency data rather than central bank signals to calibrate rate expectations. This change has far-reaching implications for yield curve pricing—if the market cannot anchor on a policy end-point, long-end premiums are likely to expand, and curve steepening pressure may persist.

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