US Treasury auctions hold firm amid fiscal and policy jitters

Is the US fiscal path sustainable, especially given sticky inflation, higher-for-longer interest rates and the Trump administration's unpredictable policy mix? Questions were raised after a government bond auction in May was poorly received, but more recent debt sales indicated there is still robust demand for long-term securities.

Demand held firm at both the USD 39 billion auction of 10-year notes (June 11) and the USD 22 billion auction of 30-year bonds (June 12).

We charted several measures of strength for bond auctions, including the bid-to-cover ratio (the dollar amount of bids in an auction versus the amount sold) and the yield.

The 30-year "long bond" sale was watched especially closely: these were awarded at a yield of 4.84%, below the pre-auction level of 4.91%. The bid-to-cover ratio rose to 2.43 from 2.39 at the previous auction. The 10-year notes were awarded at 4.43%, also below the pre-auction yield of 4.47%. Signs of cooling inflation and a softening labor market likely helped.

Our second chart breaks down the allocation to different groups of buyers. "Indirect bidders" (i.e., foreign investors) absorbed about 65% of the long-bond offering and 71% of the 10-year notes, a relatively robust level of overseas demand in both cases.

The disappointing 20-year auction in May roughly coincided with Moody's stripping the US of its last top credit rating, blaming successive administrations for budget shortfalls; that pushed the 30-year yield above 5% for a time. Much attention was also being paid to President Trump’s proposed “big beautiful bill,” which features tax cuts that could swell the federal debt by USD 3 trillion over a decade, according to Congressional Budget Office estimates. It's currently being reviewed by the Senate.

"Liberation Day" tariffs, meanwhile, raised concern about the sustainability of foreign flows into US debt; the price of credit has effectively risen, as our third chart shows. We've also added credit-default swaps to measure the cost of insuring against a default; these spreads have widened. (The CDS database is available under the GFI Fenics offering in CEIC.)

Our last chart shows how the federal budget deficit now exceeds 6% of GDP. The US debt ceiling, reinstated at USD 36.1 trillion in January 2025, is expected to become binding this summer; to avoid a potential default, Congress must pass the bill or a separate measure to authorize further borrowing.

For CEIC's dashboard covering even more US Treasury auction results, click here.