The yield on 20-year US Treasury bonds hit a record high at auction, while the yield on 10-year US Treasury bonds reached a new 20-year high.

The pressure on the U.S. long-term Treasury market continues.

The U.S. Treasury auctioned $13 billion in 20-year Treasury notes on Tuesday, with the yield reaching 5.420%, up 21.6 basis points from the 5.204% yield of the previous auction of the same maturity. This set a new record for the highest yield on Treasury notes of this maturity at auction, surpassing the previous record of 5.245% set in October 2023.

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

The auction results show that investors are still willing to take on long-term U.S. government debt at higher yields, but the risk compensation required for long-term U.S. Treasury bonds is rising due to a combination of factors, including inflation, energy prices, fiscal financing needs, and the Federal Reserve's interest rate path.

In terms of investor structure, the final allocation ratio for indirect bidders was 52.47%, lower than the previous 62.93%; the allocation ratio for direct bidders was 30.68%, higher than the previous 24.59%; and the allocation ratio for primary dealers was 16.85%, also higher than the previous 12.49%.

Therefore, judging solely from the bid-to-cover ratio, this auction cannot be simply defined as "weak demand." The bid-to-cover ratio of 2.57 was even slightly higher than the previous one. However, the significant increase in the winning yield and the marked decrease in the allocation ratio for indirect bidders still reflect that the market needs higher yields to attract funds into long-term US Treasuries.

On Tuesday, the yield on the 10-year U.S. Treasury note rose above 5% again, reaching as high as 5.045%, its highest level since 2007.

The yield on 10-year US Treasury bonds hit a new high in nearly 20 years.

The U.S. long-term Treasury market is experiencing significant volatility at the time of this 20-year Treasury auction.

U.S. Treasury Secretary Bessant said at a congressional hearing on Tuesday that rising bond yields were due to “global issues.”

On Tuesday, the yield on the 10-year U.S. Treasury note hit its highest level since 2007, as the bond market crash experienced by most of the world's major economies continued.

Analysts believe that the rise in US Treasury yields is related to rising oil prices, market expectations that the Federal Reserve will raise policy rates this week, capital competition from artificial intelligence spending, and concerns about the future of US finances.

At the hearing, Bessant acknowledged that the rise in the 10-year Treasury yield reflected factors such as "the need to address the deficit."

High yields on long-term US Treasury bonds will affect financing costs for the real economy and suppress risky assets.

Rising yields on long-term U.S. Treasury bonds will be transmitted to the real economy through mortgage lending, corporate bonds, and other credit markets.

The US 30-year fixed mortgage rate has been affected by the 10-year Treasury yield exceeding 5%, thus the housing market recovery faces constraints from higher financing costs.

For the stock market, rising long-term government bond yields also mean higher discount rates used for valuation, which is theoretically particularly unfavorable for growth stocks that rely on long-term earnings expectations.

However, US stocks are currently supported by corporate earnings growth and the AI investment boom, and have not yet shown a clear risk aversion matching the volatility in the bond market.

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