US Bond Market Flashing Red: 30-Year Yield Tops 5%, Prices Tank To October 2023 Lows

Long-dated U.S. Treasuries tumbled to their lowest levels since October 2023 as yields surged past 5%, fueled by a weaker-than-expected bond auction and mounting deficit fears tied to President Donald Trump‘s proposed tax-cut plan now under debate in Congress.

The 30-year Treasury yield soared to 5.08% on Wednesday, sending bond prices tumbling and pushing the iShares 20+ Year Treasury Bond ETF TLT down 1.6% to $84—its lowest level since October 2023.

The move accelerated shortly after 1:05 p.m. in New York, following the U.S. Treasury's $16 billion auction of 20-year bonds. The auction produced a high yield of 5.047%, roughly 1.2 basis points above the when-issued level, signaling soft demand.

According to an analysis by Exante Data, Wednesday’s auction metrics signaled overall weak demand.

The bid-to-cover ratio came in at 2.46, sitting just above the bottom quartile of the last 50 auctions and well below the historical median, pointing to soft overall interest.

Primary dealers—the institutions obligated to absorb unsold issuance—took 16.9% of the auction, near the top end of historical norms, indicating that other buyer groups were less aggressive.

Direct bidders, such as mutual funds and hedge funds, only accounted for 14.1%, well below their typical share.

The only bright spot came from indirect bidders—largely foreign investors—who absorbed 69%, a figure above the median and a sign that global buyers are still stepping in, even as domestic appetite shows signs of fatigue.

Chart: TLT ETF Sinks To 19-Month Lows

Deficit Fears Keep Pressure On Bonds

Market participants remain focused on the structural shift in U.S. fiscal policy under President Trump's second administration. The new tax-and-spending package, expected to pass Congress in coming weeks, could slash federal tax revenues by $4.1 trillion through 2034, according to the Tax Foundation.

In a note Wednesday, Oxford Economics analyst John Canavan said Moody's recent downgrade of U.S. sovereign debt didn't come as a shock but amplified existing concerns.

"The downgrade itself shouldn’t have a major impact on markets, but it does reinforce the pre-existing concerns about fiscal sustainability and the broader attractiveness of U.S. assets for global investors."

Canavan added that higher Treasury term premiums—extra compensation for holding long-dated debt—are likely to remain elevated under such fiscal conditions.

Veteran Wall Street investor Ed Yardeni echoed the sentiment, saying that the bond market is increasingly pricing in a more structural problem with U.S. fiscal management.

"Budget deficits matter," Yardeni said. "That's especially so when they lead to higher interest rates, higher bond yields, and potentially higher inflation."

Yardeni warned that Trump's new fiscal package is "a big beautiful bill that totes a big ugly tab," arguing that the composition of the tax plan—not just its headline numbers—is driving bond market unease.

"Huge budget deficits were a feature during the COVID pandemic," Michael Gayed, CFA said in an email.

"But the fact that they've remained in place even throughout the post-pandemic recovery indicates that excessive government spending has become the norm, not the exception. If this tax cut bill passes, which it likely will eventually, Treasuries may have a harder time developing any momentum, save for a major economic downturn."

Read now:

• 5% Treasury Yields Are Back, And So Are Painful Mortgage Rates
  

Photo: Shutterstock