5-Year Treasury Auction Yields Highest Since 2006; Bitcoin Under Pressure

The yield on the five-year Treasury note reached its highest point since June 2006 at the latest auction, indicating softening demand for government debt despite persistently high yields.

Higher yields increase borrowing expenses throughout the economy and typically weigh on equities, fixed income, and other riskier assets because investors seek greater returns for holding debt.

Rising Yield, Dropping Interest

A $70 billion sale of five-year notes on Wednesday cleared at 5.033%, exceeding the 5.002% when-issued rate, per Dow Jones data. That compares with 4.393% at the previous auction in August.

The bid-to-cover ratio, which gauges demand by comparing total bids to notes offered, dropped to 2.212, its weakest reading since December 2018.

Indirect bidders, encompassing foreign central banks, purchased only 54.3% of the offering, down from 61.5% at the prior auction and the smallest proportion since March 2020.

Yields Are Rising Across the Curve

The sell-off extended beyond five-year maturities. The 10-year Treasury yield rose to 5.12% on Wednesday, a peak not seen since 2007, and the 30-year bond reached 5.37%.

Rick Santelli of CNBC described the five-year auction as weak, noting that traders had insufficient time to prepare. Flash survey data showed business activity expanding at the quickest rate since July 2021, further fueling the morning's yield rise.

Fed Governor Michael Barr stated on Wednesday that additional interest rate increases remain necessary to curb inflation. Market participants subsequently raised the probability of an October rate hike to 70%.

Santelli pointed out that 10-year yields have averaged about 5.5% since 1980, implying that present levels are not as extraordinary as they seem. He nevertheless identified the next resistance for five-year yields around 5.19%.

What It Means for Bitcoin

Elevated long-term yields increase the opportunity cost of holding assets that generate no income, such as bitcoin. Bitcoin had already dropped below $84,000 following another strong data release that drove the 10-year yield above 5%.

The weak five-year auction compounds that pressure. Bitcoin's correlation with technology stocks has grown, heightening its sensitivity to changes in the interest rate outlook.

The downturn is part of a wider trend of bond yields soaring to multi-decade peaks in major economies around the world this year.

Market participants will monitor whether yields continue to climb across the curve. Santelli maintains his view that the current sell-off is likely temporary and not the beginning of a more profound repricing.