Amid a persistent rise in global government bond yields, a strong demand emerged in the U.S. 10-year Treasury auction held on October 7. This has sparked interest in whether the recent surge in U.S. Treasury yields, which has shaken financial markets, may have peaked and could change direction.
On that day, the yield on the U.S. 10-year Treasury rose to 5.36%, reaching its highest level in 24 years since 2002. The 30-year yield also climbed to 5.7%, setting a similar 24-year record. The increase in Treasury yields is attributed to a combination of factors, including rising international oil prices due to the Iran conflict, inflation concerns, expectations of interest rate hikes by the Federal Reserve, increasing U.S. government debt, and substantial corporate bond issuances by AI companies seeking investment funding.
However, the auction for $39 billion in 10-year Treasuries saw significant demand, with a bid-to-cover ratio of 2.77, the highest in a decade since 2016, and the accepted yield was set at 5.3%. Following the auction results, supply concerns eased somewhat, bringing market yields down to around 5.28%, similar to the previous day. The recent surge in U.S. Treasury prices has made them attractive to investors, raising expectations that the upward trend in yields may be slowing.
Monty Gandhi, a rate strategist at Sumitomo Mitsui Banking Corporation, commented on the auction results, stating, "This shows that well-capitalized investors find the current levels attractive." He noted that some large investors had closed their short positions at around the 5% yield level and suggested that they appear to be re-entering the market as buyers.
In this context, major investment banks are also forecasting a decline in U.S. Treasury yields in the near future. Goldman Sachs predicts that the yield on the 10-year note will drop to 4.75% by year-end, as factors driving inflation, such as tariffs and the Iran conflict, are expected to weaken, leading to better control of price pressures in the U.S. JP Morgan and Morgan Stanley also forecast year-end yields of 5.05% and 4.8%, respectively.
Conversely, some analysts warn that pressures from the Iran conflict, AI investments, and rising U.S. government debt may keep yields elevated. Barclays stated that as long as the U.S. economy maintains its current robust momentum, there is no reason for long-term yields to fall below 5%, predicting that rates will remain high for the time being. They have adjusted their forecast for the 10-year yield in the third quarter of next year from 5% to 5.25%.
Danske Bank also anticipates continued upward pressure on long-term yields, noting that the supply of bonds from both the U.S. Treasury and large AI cloud companies will persist, potentially pushing 10-year and 30-year yields up to 6%.
A neutral outlook has also emerged. Bank of America expects the 10-year yield to fall to 5% by year-end but cautions that "we should not go against the market," suggesting that the likelihood of rising rates currently outweighs the potential for declines.
Citi Group sees a significant chance for the 10-year yield to drop to 5% by year-end, but notes that in the short term, Treasury yields could deviate significantly from their fair value due to a current state of "mini-buying strike," where there are insufficient buyers in the market. This supply-demand imbalance could lead to notable deviations in Treasury yields from their fair value.
In light of these developments, market attention is now shifting to the scheduled U.S. 30-year Treasury auction on October 8. If strong demand is confirmed in this $22 billion auction, it could revive buying interest in long-term Treasuries, further reversing the recent surge in Treasury yields that has impacted global financial markets.
John Briggs, head of U.S. rates at French investment bank Natixis, remarked, "Last week, the bond market showed resistance primarily in the short end, but now we are seeing signs of demand in the long end as well." He added, "It is still early to declare victory, but it is a positive signal."
* This article has been translated by AI.
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