US 10-Year Yield Tops 5% as Global Bond Yields Surge in Tandem
The US 10-year Treasury yield closed at 5.006%, its highest level in 19 years. The surge was not confined to the US: Japan's 10-year yield hit its highest level since 1996, the UK's 10-year yield its highest since 2007, France's 10-year yield its highest since 2008, and Germany's 10-year yield its highest since 2009, marking an unusual episode of global bond yields rising in tandem. The surge in international oil prices was seen as stoking inflation concerns and adding further upward pressure on long-term rates.
A weak demand showing was confirmed at the day's 20-year US Treasury auction. The bid-to-cover ratio came in at 2.57, below the recent six-month average of 2.65, and the auction was awarded at a yield of 5.42%, higher than the pre-auction expected yield of 5.40%, resulting in a so-called tail. The share of the auction awarded to foreign investors fell to 52%, down from 62% a month earlier and an average of around 68%, an indication that demand for US Treasuries from major overseas investors has notably weakened. With the resulting gap in overseas demand being absorbed by direct retail bids (roughly 30%) and domestic institutional investors, concerns were raised that long-term Treasuries could face additional rate pressure as they compete for funding with corporate bonds, including those of big tech companies.
US Treasury Secretary Scott Bessent, testifying before the House Financial Services Committee the previous day, attributed the surge in the 10-year yield to global factors such as the spike in international oil prices as well as concerns over the United States' massive fiscal deficit. He characterized the Treasury's bond buyback program as a success, though some on Wall Street voiced skepticism toward that assessment, noting that long-term rates had in fact risen further after the buyback program was implemented.
In a report analyzing whether the US 10-year yield's move past 5% signals a bubble collapse, KB Securities analyst Lee Eun-taek noted that historical precedent suggests bubble-collapse conditions are met when the 10-year yield trends past the 5.0% to 5.3% range while accompanied by sticky core consumer price inflation. While the current move past 5% satisfies the first condition, he concluded it is premature to characterize this as a bubble-collapse signal, since a trending rise in core inflation excluding housing costs is not yet clearly evident.