The US Treasury conducted an auction for 5-year bonds, which resulted in the highest yield since June 2006– 5.033%. The auction attracted bids totaling $70 billion. According to Dow Jones, the auction yield exceeded the 5.002% level recorded before it took place. This means the yield increased from 4.393% at the previous auction in August. The bid-to-cover ratio, which measures the number of bids to the number of bonds sold, fell to 2.212– the lowest level since December 2018. Additionally, the share of indirect bidders, including foreign central banks, was only 54.3%, down from 61.5% at the last auction and the lowest since March 2020. Amidst this, the 10-year bond yield also rose, reaching 5.12% on Wednesday, which is also the highest since 2007, and the 30-year– 5.37%.
According to Rick Santelli from CNBC, the results of the 5-year auction were weak, as traders had insufficient time to adapt before the sale. Meanwhile, Federal Reserve Governor Michael Barr noted that further rate hikes are necessary to curb inflation. Currently, traders estimate a 70% chance of a rate hike in October. Santelli also pointed out that the 10-year bond yield averaged around 5.5% since 1980, indicating that current levels are not so extreme. However, he highlighted the next resistance level for 5-year bonds at 5.19%.
High long-term yields increase the opportunity cost of holding non-yielding assets like Bitcoin. Bitcoin has already fallen below $84,000 after other data pushed the 10-year yield above 5%. The weak 5-year bond auction adds to this pressure. Bitcoin continues to trade in line with tech stocks, making it sensitive to changes in rate forecasts and market conditions. The decline in cryptocurrency prices aligns with a broader trend where global bond yields are reaching multi-year highs in leading economies this year.
Related articles
