Will cancelling 20-year U.S. Treasury bonds backfire? BNP Paribas warns it could worsen market sell-off; maintains prediction of 30-year yield rising to 5.8%

智通财经2026/10/06 23:21

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By:智通财经

BNP Paribas warns that U.S. Treasury Secretary Janet Yellen should resist calls to cancel the issuance of 20-year U.S. Treasury bonds, as this measure, seemingly aimed at lowering long-term financing costs, could have the opposite effect. Not only would it be difficult to continuously suppress Treasury yields, but it could also raise borrowing costs and weaken market liquidity.

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Zhitong Finance APP has learned that BNP Paribas has warned that US Treasury Secretary Janet Yellen should resist calls to cancel the issuance of 20-year US Treasuries. The bank states that although this measure appears aimed at lowering long-term financing costs, it may backfire by not only failing to sustain lower Treasury yields, but could also increase borrowing costs and weaken market liquidity.

As long-term US Treasury yields hover near multi-decade highs, bond traders are discussing whether the US Treasury Department will further adjust the structure of debt issuance by reducing the supply of long-term bonds and shifting toward shorter-term debt. Among these options, cutting or even completely canceling the 20-year Treasury issuance has become a more radical approach discussed in the market. Currently, the 20-year Treasury requires a higher yield than the 30-year, resulting in an inverted yield curve where longer maturities usually offer higher yields, which is not the case here.

BNP Paribas strategists led by US Rates Strategy Chief Guneet Dhingra believe that this approach “won’t work.” They point out that canceling the 20-year Treasury is unlikely to sustain a drop in overall yields and could instead lead to higher yields and further declines in market liquidity.

BNP Paribas believes that, if the Treasury directly cancels the 20-year bond, the market may interpret it as a “panic” move in the face of persistently rising long-term rates and see it as a sign that the Treasury is running out of policy tools to stabilize the bond market. This, in turn, could spur so-called “bond vigilantes” to increase their selling. BNP Paribas therefore continues to recommend shorting 30-year Treasuries, forecasting their yield will rise from the current approximate 5.64% to 5.8%.

As the debate on debt issuance policy heats up, the US Treasury will release its Quarterly Refunding Statement on November 4, which will disclose the next phase of Treasury issuance plans. This statement is drawing particular attention as it will be the first following the Treasury’s unexpected adjustment to its long-term Treasury buyback plan. Janet Yellen previously referred to this operation as a “Treasury twist operation,” which temporarily eased selling pressure on long-term Treasuries; however, yields subsequently rose again to 24-year highs.

In the previous Quarterly Refunding Statement, the Treasury subtly changed its language, saying it is evaluating potential “changes” in the issuance of future fixed-rate and floating-rate notes, rather than previously stating it would “increase” supply—leaving room for a future reduction in some maturities. However, BNP Paribas still considers a complete cancellation of the 20-year Treasury as a low-probability tail risk scenario for now.

Since its reintroduction in 2020, the 20-year Treasury has faced both demand and pricing challenges. Calls to cancel this maturity were already present even before the recent surge in yields. On Tuesday, the 20-year Treasury yield stood at 5.68%, briefly reaching 5.75% the previous day—a new high since its 2020 reintroduction.

The US Treasury has precedence for canceling the issuance of long-term bonds. In 2001, the Treasury suspended the 30-year issuance, but at that time, the US government was running a fiscal surplus and had much lower financing needs than today. Now, with a large fiscal deficit and massive bond issuance, canceling a maturity would inevitably shift the financing burden to other terms.

BNP Paribas points out that the Treasury’s previous expansion of long-term Treasury buybacks has failed to stop yields from rising, indicating the limited impact of simply adjusting the supply of bonds on yields. If long-term issuance is reduced, the Treasury may need to increase the issuance of Treasury bills with maturities under one year—yet under the Federal Reserve’s rate hikes, this form of financing could become even more expensive.

BNP Paribas strategists believe that unless fundamental issues like inflation and fiscal deficits are addressed, simply tweaking issuance structures or expanding buybacks will not fundamentally lower long-term yields. As such measures repeatedly fail to curb rising yields, they could actually heighten bond investors’ concerns about the US fiscal outlook.

Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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Repeated, no changes to the main text. By Jamie McGeever Reuters, Orlando, Florida, October 6 - U.S. Treasury auctions are supposed to be dull, predictable, and lacking in news value. But these are unusual times, and the Trump administration now faces the risk of weak government bond sales making headlines. The U.S. Treasury plans to issue nearly $120 billion in bonds this week—the first auction of bonds other than short-term Treasury bills in two weeks: $58 billion in three-year notes on Tuesday, $39 billion in ten-year notes on Wednesday, and $22 billion in thirty-year bonds on Thursday. These auctions would ordinarily be inconsequential, but they're attracting increased attention due to the exceptionally weak auction results from September 22–24—particularly the five-year Treasury auction on September 23, which led to the largest jump in yields since April of last year. Since then, yields have not fallen back, and instead, have surged to multi-decade highs across most maturities. It's important to note that the possibility of a "failed" U.S. Treasury auction is nearly zero. The primary dealers—26 banks and institutions currently authorized by the New York Fed to act as Treasury market makers on Wall Street—are always involved. They essentially underwrite the sales, ensuring the smooth operation of the $30 trillion U.S. Treasury market, which is the most liquid in the world. This, in turn, keeps the entire global financial system running. Trillions of dollars of global debt, assets, and market derivatives are benchmarked off U.S. Treasuries. U.S. Treasuries also serve as collateral to "lubricate" the pipes of the U.S. and global financial systems—in repos, interbank lending, and financing. In short, as long as U.S. Treasuries remain the backbone of the global financial system, there will always be buyers in Treasury auctions. The perpetual question is the price at which these bonds ultimately clear. With borrowing costs in the secondary market now at their highest since the mid-2000s, it's reasonable to expect the Treasury will pay correspondingly high rates in the primary market. But as recent auction rounds have shown, there remains potential for negative surprises. “Too big for the market to digest?” The $70 billion five-year auction on September 23 was among the most concerning in recent years. Demand—as measured by bid-to-cover ratio—was the lowest in nine years. The Treasury sold these notes at a yield of 5.033%, more than 3 basis points above the market yield at the auction deadline. Three basis points might not sound like much, but for a five-year Treasury auction, that's highly unusual. This was the largest so-called "tail" since June 2022. JP Morgan analysts pointed out that the last time the five-year auction saw a three-basis-point tail was back in 2011—when the brewing debt ceiling crisis ultimately led to the U.S. credit rating being downgraded that August. Back to today, concerns over the U.S.'s bleak fiscal outlook have pushed up long-term borrowing costs. Consequently, markets widely expect the Trump administration to gradually shift the Treasury's massive funding needs toward the lower-cost, shorter end of the yield curve. That explains why the five-year auction two weeks ago caused such a stir. A three-basis-point tail is common in long-bond auctions, but rare for securities in the so-called "belly" of the curve. If the Treasury is forced to pay a higher premium to move these bonds, then Houston, we have a problem. Large auction tails can be caused by numerous factors, such as market volatility on the day of the auction or, more worryingly, underlying fundamental issues that could erode demand over time. It's usually difficult to distinguish between these dynamics, as they're not mutually exclusive. On the brighter side, this unease hasn't yet spread to the short end of the curve. At least, not for now. Three- and ten-year Treasury yields have risen by about 50 basis points from the last auction a month ago, hovering around 4.96% and 5.32% respectively. The 30-year yield is up about 35 basis points, to 5.65%. That should be high enough to attract strong demand and ensure smooth sales, right? Probably. But if we get a surprise, volatility and uncertainty could ripple across the entire market. Investors will be… watching developments like hawks. (The views expressed herein are those of the author, a Reuters columnist.) Enjoyed this column? Visit Reuters Open Interest, your essential new source for global financial commentary. Follow ROI on LinkedIn and X. You can also listen to the daily "Morning Bid" podcast on Apple, Spotify, or the Reuters app. Subscribe for seven-day-a-week in-depth analysis of market and financial news by Reuters journalists. US 5-year auction has biggest 'tail' since 2022 https://fingfx.thomsonreuters.com/gfx/mkt/dwpkmkzogpm/TAIL.png (For reader convenience, Reuters automatically translates its reports into several other languages. Automate

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