- 20-year bond auction sees poor demand, yield jumps to 5.047%, highest since November 2023.
- Moody’s downgrade and looming tax bill stoke fears over US fiscal credibility.
- Broad yield curve climbs as investors brace for inflationary, deficit-boosting policies.
US Treasury yields soared on Wednesday as a weaker-than-expected 20-year US bond auction ahead of the vote on the US budget in the US Congress. At the time of writing, the US 10-year T-note benchmark note surges 11 basis points at 4.601%.
Treasury yields jump after weak bond demand and deficit fears tied to Trump’s debt-heavy tax plan
Reuters reported that a $16 billion sale of 20-year bonds saw soft demand, with a yield of 5.047%, which exceeded the previous auction’s yield of 4.810%.
The yields of US government debt across the entire curve rose at the beginning of the week, following news that Moody’s downgraded the US creditworthiness from AAA to Aa1, citing more than a decade of inaction by successive US administrations and Congress to address the country’s deteriorating fiscal position.
Sources cited by Reuters revealed that “the interest rate environment is reflecting concerns regarding U.S. budget deficits, with some estimates around the new tax bill showing it would add trillions to the deficit.”
The yield on the US 20-year note rose to 5.125% following the auction, its highest level since November 2023.
Unpredictable economic policies by US President Donald Trump triggered a jump in Treasury yields across the curve. Tariffs are seen as inflation-prone, and the increase in the US fiscal deficit continues to pressure the bond market.
The US House of Representatives will vote on Trump’s budget on Wednesday.
In the meantime, the Federal Reserve’s posture to keep interest rates steady. Consequently, the US 2-year Treasury note yield, the most sensitive to changes in monetary policy, rises five bps up at 4.022% at the time of writing,
