U.S. 5-Year Treasury Auction Yield Hits Highest in 20 Years

The U.S. Treasury paid its highest yield on 5-year notes since June 2006, indicating that demand for government debt is weakening, even as yields remain high across all sectors.

The increase in yields raises borrowing costs throughout the economy. Additionally, this typically puts pressure on stocks, bonds, and other riskier assets, as investors demand higher compensation for holding debt.

Rising Yields, Decreasing Demand

According to a Dow Jones report, the $70 billion auction on Wednesday was priced at a rate of 5.033%, which is higher than the 5.002% level at the time of issuance. This figure represents a significant increase from the 4.393% yield at the previous sale in August.

The bid-to-cover ratio, which indicates how many bids were received for each note sold, fell to 2.212, the lowest level since December 2018. Indirect bidders, a group that includes foreign central banks, accounted for only 54.3% of the sale. This figure is down from 61.5% in the last auction and represents the lowest share since March 2020.

Yield Increases Across the Curve

This pressure was not limited to 5-year debt. The yield on 10-year Treasury notes also rose to 5.12% on Wednesday, the highest level since 2007, while the yield on 30-year notes reached 5.37%.

Rick Santelli from CNBC described the results of the 5-year auction as weak, noting that traders had little time to adjust their positions before the sale. According to preliminary survey data, trading activity has accelerated at its fastest pace since July 2021, which intensified pressure on yields that day.

Michael Barr, a Federal Reserve official, stated on Wednesday that further interest rate hikes are still needed to reduce inflation. Following this remark, traders raised the probability of a rate hike in October to 70%.

Santelli noted that the average yield on 10-year Treasury notes has been around 5.5% since 1980. This history suggests that current levels are not as unusual as they may seem. However, he predicted the next resistance level for 5-year yields to be near 5.19%.

What This Means for Bitcoin

The rise in yields over the long term increases the opportunity cost of holding non-yielding assets (such as Bitcoin). Previously, Bitcoin had also fallen below $84,000 after the release of other hot economic data that pushed the 10-year yield above 5%.

A weak 5-year auction adds to this pressure. Bitcoin is increasingly trading in line with tech stocks, making it highly sensitive to changes in the interest rate outlook.

This selling pressure follows a broader pattern of rising global bond yields to their highest levels in decades across major economies this year.

Traders are now waiting to see if yields continue to rise. Nevertheless, Santelli predicts that the current selling pressure is temporary and does not signify the beginning of a deeper price decline in the markets.

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