US Government Sold $797 Billion of Treasury Securities this Week. 10-Year Treasury Yield Hits 4.73%, 30-Year Yield 5.22%

Warsh moved the needle on Friday, while Bessent’s Hocus-Pocus Shows 1-3 fizzled.

By Wolf Richter for WOLF STREET.

The US government sold $797 billion of Treasury securities this week, spread over 10 auctions. That’s a lot of paper. Of them, $562 billion were Treasury bills with maturities from 4 weeks to 26 weeks, spread over six auctions. Most of these sales replaced maturing T-bills. And $235 billion were Treasury notes across four auctions.

No auctions are scheduled on Fridays, and all these auctions took place on Monday through Thursday. But it was on Friday that the wild drama happened – the wild drama of Fed Chair Warsh refusing to spoon-feed markets some soothing pap. This caused yields across the Treasury yield curve to rise on Friday; in the maturities of 1 year to 5 years, yields rose the most, spiking by 11 to 14 basis points.

The 3-year Treasury yield spiked by 11 basis points on Friday to 4.41%, the highest since a few days in January 2025, and before then, the highest since 2024. Buyers and sellers in that segment of the bond market are seeing a scenario of multiple rate hikes. The 3-year yield is now 78 basis points above the Effective Federal Funds Rate (EFFR, blue), which the Fed targets with its policy rates.

The 2-year Treasury yield spiked by 14 basis points to 4.34%, according to Treasury Department calculations, the highest since July 23, and beyond that one day, the highest since February 2025.

But at the Treasury auction on Tuesday, the government had sold $78 billion of 2-year notes at a yield of 4.20%, 14 basis points below Friday’s closing yield.

The government sold $235 billion of Treasury notes this week, including a regular 2-year note with a fixed coupon payment, and a 2-year Floating Rate Note (FRN).

The 2-year FRNs were sold at a “spread” of 0.055%. Holders get an interest rate that resets every week, based on the yield at which the most recent 13-week T-bills were sold at auction, plus the spread of 0.055% (discount margin).

Notes & Bonds	Auction date	Billion $	Auction yield	Spread
Notes FRN 2-year	Aug-26	28		0.055%
Notes 2-year	Aug-25	78	4.204%
Notes 5-year	Aug-26	79	4.393%
Notes 7-year	Aug-27	50	4.512%
Notes & bonds		235

In the secondary market, the 5-year Treasury yield closed at 4.48% on Friday, about 9 basis points higher than the yield at which $79 billion of 5-year notes has been sold at auction on Wednesday.

And the 7-year Treasury yield closed on Friday at 4.59% in the secondary market, about 8 basis points higher than the yield at which the $50 billion of 7-year Treasury notes had been sold on Thursday.

Bessent’s three hocus-pocus shows fizzled.

Bessent’s job is to fund the huge deficits by selling Treasury securities at a pace of $1 trillion every three to five months, come hell or high water. And he has to sell them at the lowest possible yield. It’s a dirty job, but somebody’s gotta do it.

The 30-year Treasury yield was surging in July. So he came up with Hocus-Pocus #1: the joint US-Japan yen intervention at the end of July and confirmed on August 3. That pushed yields down for a couple of days before they rose again.

Then on August 13, 30-year Treasury bonds sold at the auction at a yield of 5.216%, the highest auction yield since 2001, and in the secondary market, the 30-year yield continued to rise. That gave Bessent the willies. So on August 19, the announcement of Hocus-Pocus #2: doubling the buybacks of 10-year to 30-year Treasuries. Yields dropped for just one day, then rose again.

So then Hocus-Pocus #3, on August 24, the leaked story on CNBC that he’d “tap” the Treasury General Account to fund the buybacks. Alas that’s the checking account of the US, the only checking account of the US that pays for everything, including paying off maturing Treasuries, so what else is he going to tap? But the media ran with it. And that worked for a day.

Bessent has been accused of politicizing the bond market with these shows, trying to get yields and mortgage rates down before the midterm elections, including by his former boss, Druckenmiller, in an editorial in the WSJ:

“Debt management that even appears to follow the political calendar spends the one asset that took two centuries to accumulate: the credibility of the Treasury market. That asset doesn’t regain its value so easily.”

Unimpressed with the shows, the 30-year Treasury yield rose on Friday to 5.22%, right back in the 5.20%-plus range, reflecting the highest secondary-market yields since 2007.

When yields rise, bond prices fall, and these past six years of bond bear market have been a bloodbath for holders of 30-year bonds, especially those issued in 2020, at around the final paroxysm of the 40-year bond bull market that ended in August 2020. Those 30-year bonds have lost over half their value in the secondary market. The bond bear market just passed it sixth anniversary.

A lot of things can go wrong over the next 30 years. Inflation can go haywire. The fiscal situation of the federal government can deteriorate further, leaving behind a rapidly growing mountain of debt that could reach crisis levels. With Congress unwilling to raise taxes and cut spending, eventually the debt will remain manageable only through the combination of higher inflation – such as in the 3-5% range, forget 2% – and higher nominal economic growth. In this scenario, the Fed would let the economy “run hot,” cutting rates early, and hiking rates late. Which is what the Fed has been doing already.

Bond buyers, wanting to be compensated for those risks, have been demanding a higher yield.

But these bond buyers currently are still expecting the Fed to reduce average inflation over the next 30 years to about 2.25%, according to the difference between the 30-year Treasury bond yield of 5.22% and the 30-year Treasury Inflation Protected Securities (TIPS) yield of 2.97% (TIPS holders get inflation protection added to the principal, based on CPI). That difference of 2.25 percentage points reflects the average inflation over the term of the bonds that the bond market expects.

Many observers and potential bond buyers, including this one here, see a very low chance of inflation averaging 2.25% over the next 30 years. And they’re not buying 30-year Treasury bonds until 30-year yields move significantly higher to compensate them for this expected inflation. Some sellers are in the same camp, and they’re selling. But others disagree, and they’re buying, which is what makes a market.

But increased issuance will require that these fence-sitters get pulled off the fence to buy the new securities, and pulling them off the fence in large enough numbers would mean higher yields. That is a result of ballooning supply. New buyers that didn’t want to buy have to be persuaded to come in and buy, and higher yields accomplish that.

The 10-year Treasury yield jumped by 6 basis points on Friday to 4.73%, at the high end of its range in August.

At the auction on August 12, the government had sold 10-year Treasury notes at a yield of 4.68%, the highest auction yield since the auction in August 2007, which had spooked Bessent, and had been another reason to pull off Hocus-Pocus #2. And yields then bounced right back.

But yields are not high compared to the pre-QE decades of bond history. This chart shows the last years of the brutal bond bear market through late 1981, then the glorious 40-year bond bull market through August 2020, followed by the six years of the current bond bear market.

The government sold $562 billion of T-bills this week on Monday through Thursday, before the Warsh-inspired move on Friday.

Yields of T-bills are less influenced by inflation and supply fears – unlike long-term Treasury securities. Instead, they react to the Fed’s policy rates and to expectations of the Fed’s policy rates in the near future. And Warsh jolted them on Friday, when the 3-month yield jumped by 6 basis points, the 6-month yield by 8 basis points, and the 1-year yield by 11 basis points.

But these auction yields predated Friday.

Type	Auction date	Billion $	High Rate	Investment Rate
Bills 4-week	Aug-27	109	3.650%	3.711%
Bills 6-week	Aug-25	99	3.650%	3.717%
Bills 8-week	Aug-27	98	3.670%	3.742%
Bills 13-week	Aug-24	96	3.715%	3.803%
Bills 17-week	Aug-26	78	3.750%	3.850%
Bills 26-week	Aug-24	83	3.790%	3.918%
Bills		562

The $83 billion of 26-week T-bills were sold at the auction on Monday at a “high yield” of 3.79% or at an “investment rate” of 3.918%.

Then Friday happened. In the secondary market, the yield jumped by 8 basis points, to 4.02%, according to Treasury Department calculation.

The bond market is now largely left up to its own devices as the Fed stopped spoon-feeding it forward guidance about its future policy rates. So in early July, the bond market started pricing in a rate hike at the July FOMC meeting, and the six-month yield spiked to reflect that. But there was no majority for a rate hike (only three of the 12 FOMC members strongly wanted a hike and dissented). So that spike got worked off after the no-rate-hike meeting. On Friday, there was another spike, based on Warsh’s no-spoon-feeding Jackson Hole speech, that the market interpreted as “hawkish” in general terms, despite the lack of specific forward guidance.

The 6-month yield is 39 basis points above the EFFR (blue, 3.63%), indicating that the market sees a very high chance of at least one rate hike in its window.