- The Treasury sold about $654B this week ($500B bills, $154B notes/bonds), and the 10-year yield jumped to ~4.24%, the highest since Sep 2, 2025.
- Heavy 10-year issuance ($138B across three auctions) replaced $66B of maturing low-coupon debt, sharply lifting interest costs on that refinancing.
- Despite three Fed rate cuts since Sep 2025 pulling down short-term yields, long-term yields are rising as markets price inflation risk, deficits, supply, and a higher term premium.
- Higher long yields steepen the curve and raise economy-wide borrowing and federal debt-service costs, with demand and Fed credibility key uncertainties.
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The recent U.S. Treasury auctions in mid-January 2026 show a sharp increase in total supply—approximately $654 billion—split between short-term bills ($500 billion) and longer-term notes and bonds ($154 billion). The 10-year note auction, at a yield of 4.173 %, was met with rising secondary market yields, culminating in 10-year Treasuries reaching 4.24 % by January 16, the highest level since September 2, 2025—well before several Federal Reserve rate cuts.
This divergence between short and long maturities is consistent with a steepening of the yield curve: while the Fed’s three rate cuts since September 2025 have eased short-term rates, long-term yields remain grounded by structural forces such as inflation expectations, borrowing supply, and term premium. Treasury bills have seen yields in the mid-3 % range (e.g., 4-, 6-, 8-, 26-week) while 10- and 30-year yields are substantially higher, breaching 4.2-4.8 % levels.
The substitution in the 10-year category is especially costly. A specific CUSIP (91282CPJ4), carrying a 4.0 % coupon, saw $138 billion issued this cycle, replacing $66 billion of debt at just 2.25 %. Annual interest payments for that volume have nearly quadrupled—from about $1.48 billion to about $5.52 billion for that issue alone. Extrapolated across the U.S. debt portfolio, this shift has material implications for rising debt service burdens amid sizable deficits.
Strategic implications include: rising long-term yields signify increasing term premium and supply concerns, potentially raising cost of capital for corporates and governments. Fixed income investors will reassess duration risks. Fiscal policy faces growing strain from interest costs. For the Fed, its capacity to support growth via cuts becomes limited if inflation expectations or supply stresses overpower the policy easing. Political scrutiny (see Fed Chair and Treasury actions) could further undermine confidence in monetary policy.
Open questions: Will foreign and institutional demand keep pace under increased supply? How persistent will inflation pressures remain and how will they interact with fiscal policy? Will the Fed’s credibility hold if political forces (related to its independence) intensify while markets price in higher long-term yields? What is the trajectory for yields—will 10-year yields settle within 3.75-4.25 % or push higher?
Supporting Notes
- “This week, the government sold $654 billion in Treasury securities… Of these … $500 billion were Treasury bills … $154 billion were notes and bonds.”
- “Notes 10-year … $50.4 billion … yield 4.173 %” while secondary market yields rose to about 4.24 % by January 16
- “$138 billion of new 10-year Treasury notes replaced $66 billion of matured … with a coupon interest rate of 2.25 % … interest payments will nearly quadruple … about $1.48 billion … to about $5.52 billion per year.”
- Short-term bill yields ranging ~3.56-3.60 % (4-, 6-, 8-, 26-week) contrasted with long-term 10- and 30-year yields at ~4.24 % and ~4.83 % respectively
- “Fed’s rate cuts … have pushed down short-term yields … long-term yields are set by the bond market … concerns … future inflation … supply … deficits …”
- Research forecasts expect 10-year yield in 2026 to average ~4.0-4.25 %, with modest risk upward due to fiscal deficits and supply pressures