The US government is about to sell 30-year bonds at the highest interest rate in a quarter of a century, after a historic selloff that has stirred speculation the nation will tilt borrowing further toward short-dated maturities.\u00a0<\/p>\n
The Treasury will offer $25 billion of 30-year debt at its monthly auction later on Thursday. In the when-\u00adissued market, where securities are traded before they are actually sold, the new bond has a projected yield of around 5.23% \u2014 which would be the highest borrowing cost since 2001.<\/p>\n
It\u2019s a headache for President Donald Trump and Treasury Secretary Scott Bessent ahead of midterm elections in November. Lofty government financing costs are already\u00a0feeding through<\/a>\u00a0to the broader economy, after years of elevated inflation and government spending.\u00a0<\/p>\n The Treasury\u2019s concern appeared to be on show last week when it\u00a0tweaked<\/a>\u00a0its debt-sales guidance in a way that opened the door to\u00a0potential cuts<\/a>\u00a0to long bond supply. Meanwhile, investors are still not rushing to lock in yields at multi-decade highs, signaling a collective wariness that the selloff may not be over.<\/p>\n \u201cWe\u2019re not really at a level where people seem to be going crazy, saying \u2018I want to buy the 30-year,\u2019 and that should be a warning,\u201d said John Fath, a managing partner at BTG Pactual Asset Management US LLC. \u201cBessent may try to address it by decreasing supply, but there\u2019s already a lot of 30-year paper issued, so it\u2019s not necessarily just new supply driving price action. It\u2019s new sellers.\u201d<\/p>\n Long-term yields surged past 5% this year on investor concerns that a rise in energy prices will boost cost pressures, forcing the Federal Reserve to keep interest rates elevated for years to come. That\u2019s on top of heightened Treasury supply from years of fiscal deficits, a sudden\u00a0ramp-up of corporate borrowing<\/a>\u00a0to fund the artificial-intelligence boom, and\u00a0waning demand<\/a>\u00a0from traditional buyers of long-dated bonds.\u00a0<\/p>\n On Thursday, yields were lower by two to three basis points across maturities as a reading of US producer prices offered further evidence that inflationary pressures are easing. Traders pared back their expectations for a Fed rate hike in September to reflect about a 35% of a move, from roughly 50% earlier this week.\u00a0<\/p>\n Interest on the public debt continues to be a key driver of the\u00a0nation\u2019s budget deficit<\/a>. For the fiscal year to date, the tally is $1.17 trillion \u2014 a 15% increase, thanks in part to higher yields on Treasuries. On Wednesday, a 10-year sale\u00a0drew<\/a>\u00a0the highest yield for that tenor since 2007.\u00a0<\/p>\n \u201cWe expect today\u2019s 30-year auction to clear without difficulty, but a successful auction shouldn\u2019t be confused with strong structural demand for long-duration assets,\u201d Michal Stanczyk, a portfolio manager for the Global Fixed Income team at Allspring Global Investments, wrote in a note.\u00a0<\/p>\n If prices remain around current levels for the 30-year auction scheduled for 1 p.m. in New York, it would be the highest borrowing rate since the Treasury axed the long bond in 2001. The decision, which was infamously leaked to Goldman Sachs<\/a> traders before the public announcement, was reversed in 2005.\u00a0<\/p>\n Today\u2019s circumstances could scarcely be more different.\u00a0<\/p>\n Back then, bond investors were enjoying the spoils of a multi-decade bull market. A series of federal budget surpluses had even fueled market concern that the supply of US government debt was too low. Nowadays, the amount of Treasuries outstanding is ten times larger and growing fast, having doubled since 2018 to around $31 trillion.<\/p>\n And as traditional sources of demand have moved away from Treasuries, private market participants have stepped in \u2014\u00a0demanding juicier yields<\/a>\u00a0in the process.<\/p>\n \u201cAs the market becomes increasingly reliant on price-sensitive investors, the same amount of Treasury supply may require a larger yield concession to clear,\u201d wrote a Barclays<\/a> Plc team led by Demi Hu.<\/p>\n Guidance Tweak<\/p>\n The future size of long-bond sales has been the subject of debate over the last week, after Treasury officials made an\u00a0unanticipated tweak<\/a>\u00a0to their latest quarterly borrowing policy statement. Instead of saying they are continuing to evaluate potential future \u201cincreases\u201d in coupon and floating-rate note sales, as was the case previously, they said they are mulling potential \u201cchanges.\u201d<\/p>\n Bond investors saw that as raising the possibility that officials will trim sales of the long bonds most under pressure. Even if such a downsizing does not materialize, the market consensus is that when the Treasury does move to bigger fixed-income auctions, it will likely focus on shorter-maturity notes that mature in two- to seven-years.\u00a0<\/p>\n