The U.S. Treasury’s latest 20-year bond auction turned sour on Wednesday, sparking a sharp sell-off across bond markets and reigniting recession fears among some analysts.
The auction: Investors accepted a notably elevated yield of 5.047% on the 20-year Treasury note, sharply higher than the previous six-auction average of 4.613%. The result was also slightly higher—by 0.011 percentage points—than yields observed just before the bidding deadline.
- It marked the first time since October 2023 that a 20-year note yielded above the critical 5% threshold.
Bond sell-off: The disappointing auction sent yields soaring across the yield curve. The yield on the benchmark 20-year note surged to 5.103%, marking its highest level for the year, while the 10-year yield jumped 11 basis points to 4.59%, the highest since mid-February.
What they’re saying: Former Treasury Secretary Larry Summers took to Twitter to warn that market turmoil from the weak auction was signaling renewed concerns about U.S. financial stability, noting, “The U.S. country risk trade is back as bonds, stocks and the dollar all fell sharply today. A few more days like today and recession will be likely.”
- But not all analysts agree. Greg Ip of the Wall Street Journal pushed back on Summers’ warning, tweeting, “Bond yields are back to March levels. Equities still above April 2 levels. Lower dollar is a loosening of financial conditions. Market moves are a headwind (canceling some of GOP bill’s stimulus), but by themselves not enough for a recession.”
Impact on Rates: A bad bond auction is bad news for mortgage rates.
