A sharp selloff hit the US government bond market on Wednesday, pushing borrowing costs to nearly 20-year highs after weak demand met a 5-year Treasury auction. The drop in debt prices marked the steepest bond market retreat in nearly 1.5 years, lifting benchmark yields across maturities.
Auction stumbles in Chicago
Chicago trading reflected the swift drop in demand for US sovereign debt as investors absorbed the latest debt offering from the US Department of the Treasury. Yields rose immediately across maturities.
The Treasury sold 5-year notes on Wednesday. Demand faltered at the sale.
Policy tightening pressure
Selling pressure intensified following the Federal Reserve’s decision the previous week to raise interest rates for the first time in three years, which set higher baseline costs across fixed-income markets. US consumer price growth has remained above 3 percent for half a year, well over the Fed’s 2 percent target, dampening hopes for monetary easing.
Federal Reserve Governor Michael Barr signaled that officials may need to tighten credit further to bring price increases under control. Inflation is above our two percent target and is not showing a clear trend toward that target in an appropriate timeframe, Barr said, adding that further policy adjustments will likely be needed to ensure inflation returns to target.
Scott Bessent is also monitoring the fallout as surging Treasury yields increase sovereign borrowing costs globally.
Related: US Treasury yields jump as 30-year reaches 5.44% · Global bond yields near 4% at highest since 2007
Source: US Treasury
