InvestNot yet confirmed elsewhere1 publisher2 min readPublished
Treasury's 10- and 30-year auctions clear at yields last seen in 2000
Treasury sold $121 billion of 3-, 10- and 30-year debt this week at the highest auction yields in over 20 years, including 5.30% on the 10-year. Buyers took all of it and the 10-year eased to 5.24% by Friday, so the week sets a clearing level for long debt that the next auctions will test.
The Investor · Invest desk
The 3-year Treasury note auction yield rose from 4.474% at the prior auction a month ago to 4.932% at Tuesday's auction, the highest 3-year auction yield since May 2006.
| Measure | Value | As of | Claim |
|---|---|---|---|
| Prior 3-year auction | 4.474% | a month ago | 5 |
| Tuesday's 3-year auction | 4.932% | Tuesday | 5 |
What happened
- Thursday's 30-year bond auction sold $23 billion at 5.618%, the highest 30-year auction yield since August 2000.
- The 3-year note auction on Tuesday cleared at 4.932%, the highest since May 2006 and up from 4.474% at the previous auction a month earlier.
- Bills made up most of the week's $728 billion: $607 billion of 4- to 26-week paper across six auctions, four of them above $100 billion, mostly replacing maturing bills.
- Wednesday's $39 billion 10-year sale came in better than when-issued trading had expected, and the market calmed afterward.
Why it matters
- cost The 3-year's 46 basis point rise in a month adds roughly $270 million a year of interest on this one $59 billion sale, for each of its three years.
- exposure Holders who bought 10-year notes before late February are carrying price losses from a 125 basis point rise in yield, and this week's buyers take the same hit if later auctions need higher yields.
- exposure With about 83% of the week's issuance in bills maturing within 26 weeks, most of this new borrowing reprices within half a year, so its cost tracks whatever hikes the 3-year is pricing.
Take the $39 billion 10-year and the $23 billion 30-year out of the $121 billion of coupon sales and what remains is a $59 billion 3-year [4][8][13][21]. At the three auction yields, that paper carries about $6.3 billion of interest a year, a weighted cost near 5.18% [22]. Every bill sold during the week also priced at an investment rate above 4% [3].
How far back each high reaches depends on the maturity. The 10-year's 5.30% was the highest since November 2000 [8]. Even so, it is about 120 basis points below the 6.5% range the 10-year auctioned at in the first half of 2000 [9][24]. The 30-year comparison also spans a gap: there were no 30-year auctions between August 2001 and 2005 [14].
Wolf Richter wrote on Wolf Street that the higher yields were "what it took to sell all $121 billion of these notes and bonds" [4]. Trading after the sales went the other way. The 10-year finished the week 6 basis points under its auction yield [25]. The 3-year had cleared below the just-over-5% it traded at in late September, and it closed the week at 4.92% [6].
Buyers who took the 10-year at 5.3% may keep turning up, in which case this week was the high for the long end. Or deficits of about $2 trillion a year, all financed by new debt that has to find new buyers, could push every sale higher [15]. Richter wrote that this is the market's fear, that "the tsunami of supply of new Treasuries would require still higher yields to rope in new buyers" [17]. A third outcome starts at the short end. The 3-year yield is up 150 basis points since February and already prices several hikes beyond September's [7]. If those hikes do not come, yields have room to fall from the front.
We think the second outcome has the better evidence. Treasury is competing for cash with corporate borrowers paying far more: SpaceX 10-year notes traded at 7.20% on Friday, 196 basis points over the 10-year Treasury's close [16][26]. Richter wrote that inflation "has refused to go back into the bottle" and called it the biggest long-term threat to holders of long Treasuries [18]. The case against us is that both notes drifted lower after their auctions [6][25]. We would be wrong if the next 30-year auction clears below this week's yield while deficits stay near $2 trillion a year [13][15].
What to watch
- Whether the 10-year trades back above its auction yield in the secondary market before the next 10-year sale.
- Bill investment rates against the 4% line as the hikes priced into the 3-year either arrive or fall away.
- Yields on AI-company debt such as SpaceX's 10-year notes, where a narrower gap to Treasuries would ease the competition for buyers.
Clarity's read
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- [1]
The US government sold $728 billion of Treasury securities during the week, spread over eight auctions.
- [2]
$607 billion of the week's sales were Treasury bills with maturities from 4 weeks to 26 weeks, spread over six auctions; four of these auctions were over $100 billion each, and most of these sales replaced maturing T-bills.
- [3]
The investment rate, the yield comparable to notes and bonds, on all of the week's T-bill auctions was over 4%.
- [4]
$121 billion of the week's auction sales were 3-year and 10-year Treasury notes and 30-year Treasury bonds; yields at these three auctions were higher than they had been at auctions in over 20 years, "which was what it took to sell all $121 billion of these notes and bonds," Wolf Richter wrote.
- [5]
The 3-year Treasury notes sold at auction on Tuesday at a yield of 4.932%, the highest auction yield since the 3-year auction in May 2006, up from 4.474% at the prior auction a month ago.
- [6]
In the secondary market the 3-year yield had traded at just over 5% in late September and as high as 4.98% the day before the auction; it closed the week at 4.92%.
- [7]
Since February the 3-year yield has surged by 150 basis points, pricing in multiple rate hikes in addition to the September rate hike.
- [8]
The 10-year Treasury note sold at auction on Wednesday at a yield of 5.30%, what it took to sell all $39 billion of the notes, the highest auction yield since November 2000.
- [9]
In the first half of 2000, 10-year auction yields were in the 6.5% range.
- [10]
The 10-year auction was not as bad as the when-issued market had expected, which calmed the market.
- [11]
After the 10-year auction the higher yield pulled in additional demand, and the 10-year yield edged down and closed on Friday at 5.24%.
- [12]
Since late February the 10-year yield rose by over 130 basis points as of the auction, and by 125 basis points as of the week's end.
- [13]
The 30-year Treasury bonds sold at auction on Thursday at a yield of 5.618%, the highest auction yield since August 2000, the yield it took to sell all $23 billion of bonds.
- [14]
There were no 30-year bond auctions between August 2001 and 2005.
- [15]
Government deficits continue to pile up at about $2 trillion a year and have to be financed with new debt sales that must pull in new buyers.
- [16]
SpaceX 10-year notes traded at a yield of 7.20% on Friday, nearly 200 basis points above 10-year Treasuries, and the government has to compete with AI company bonds for buyers.
- [17]
Richter wrote that the market's fear is that "the tsunami of supply of new Treasuries would require still higher yields to rope in new buyers".
- [18]
Inflation "has refused to go back into the bottle," Richter wrote, and it is the biggest threat that holders of Treasuries with long maturities face over the long term.
- [19]
Higher yields mean lower prices for existing bondholders who bought at lower yields.
- [20]
Bills were about 83% of the week's $728 billion of Treasury sales.
- [21]
The 3-year note auction was about $59 billion.
- [22]
At the three auction yields, the $121 billion of coupon debt carries about $6.3 billion of interest a year, a weighted cost of about 5.18%.
- [23]
The 3-year auction yield rose about 46 basis points in a month, adding roughly $270 million a year of interest on the $59 billion sale.
- [24]
The 10-year's 5.30% auction yield is about 120 basis points below the 6.5% range of first-half 2000 10-year auctions.
- [25]
The 10-year yield closed the week 6 basis points below its auction yield.
- [26]
SpaceX 10-year notes yielded 196 basis points more than the 10-year Treasury's Friday close.
Sources
1 independent publisher whose own reporting we read for this story.
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Topics
- Bond yieldsFollow
- US federal deficits and debtFollow
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