Long-Dated Treasurys Continue to Sell-Off

Yields surge following weak Treasury auction. Recent concerns about US debt, rekindled by the Moody’s downgrade from AAA to Aa1, continued in today’s session. A $16B, 20-year Treasury auction was awarded at nearly 5.05%, the highest yield since October 2023, reflecting weak demand. The long end of the curve rose 9-13 bps, with 10-year, 20-year, and 30-year yields now at 4.60%, 5.12%, and 5.09%, respectively. Meanwhile, the spread between 2-year (4.02%, +5 bps today) and 10-year yields is 58 bps, just 8 bps off the steepest level seen since February 2022.

Opposition to GOP tax bill clouds path forward. President Trump met with conservative holdouts yesterday to resolve disagreements that led to opposition on his signature tax bill. A key victory from that meeting was an agreement to increase the SALT deduction cap to $40,000. Speaking on behalf of the SALT caucus, Representative Mike Lawler said, “We settled on something that we believe in, we support,” while White House Press Secretary Leavitt said the meeting was “productive and moved the ball in the right direction.” However, unresolved issues on signature items, such as Medicaid cuts and phasing out Biden-era clean energy tax credit programs, cast a cloud over the success of the Bill. Ahead of the vote, the White House released a statement today saying that failure to vote for the bill would be the “ultimate betrayal.”

Former Treasury Secretary Steven Mnuchin notes concerns about budget deficit. Amid the recent sell-off in long-term US sovereign debt, Steven Mnuchin said today that he is “very concerned” about the budget deficit, adding that incremental spending cuts are critical. However, Mnuchin caveated that “I still see us as a AAA credit… I’d still rather buy US government securities than any other so-called AAA out there.” The US budget deficit was $1.8T in 2024, and the Congressional Budget Office projects a $1.9T deficit for the 2025 fiscal year. Meanwhile, President Trump’s plans for tax cuts and increased defense and border security spending are projected to add about $2.3T to the national debt over the next 10 years, though the final terms of the legislation remain uncertain.