Is the Fear of Bonds Finally Easing? Record Foreign Demand Seen in 5-Year Treasury Auction

TradingKey - Since May 2025, global bond markets have faced pressure from concerns over government fiscal policies — with yields rising rapidly across major sovereign debt markets.

However, a $70 billion auction of 5-year U.S. Treasuries conducted by the U.S. Treasury on Wednesday, May 29, unexpectedly saw strong demand — offering a rare sign of relief for an otherwise tense bond market.

The auction settled at a yield of 4.071%, slightly higher than 3.99% in April’s sale. The bid-to-cover ratio came in at 2.39, down slightly from 2.41 last month, but still above the average of the past six auctions (2.40).

Record Foreign Demand

The standout feature of this auction was the indirect bid, a proxy for foreign central bank and institutional investor demand, which reached a record high of 78.4% — the highest ever seen in a 5-year U.S. Treasury auction.

This result suggests that foreign appetite for U.S. debt may not be as weak as recent market sentiment implied — offering some respite from fears of a broad-based “sell America” trend or the fading of the so-called “U.S. exceptionalism.”

Some analysts noted that the auction showed no signs of large-scale capital flight by foreign investors — calling it a solid and stable outcome.

ZeroHedge echoed this view, calling it a “stellar auction” and suggesting that reports of the death of U.S. exceptionalism were “greatly exaggerated.”

Bloomberg analysts also pointed out that there was little evidence of buyer boycotts during the auction.

But the Long-End Remains Under Pressure

Despite the encouraging results for short-term debt, concerns remain over longer-dated Treasuries.

Market participants warned that worries about fiscal policy persist, and given ongoing uncertainty and inflation risks, bond market volatility is likely to continue.

On Wednesday, the 30-year Treasury yield hovered near 5%, closing at 4.972%, and rebounded slightly in early Asian trading on Thursday to 4.992%. The 10-year yield stood at 4.506%, up 0.60% on the day.

30-Year U.S. Treasury Yield, Source: Investing.com

According to a trader survey released by J.P. Morgan on Wednesday, investors — including central banks, sovereign wealth funds, currency traders, and speculators — expect further selloff pressure on long-term Treasuries. Their net short positions surged to the highest level since mid-February.

Analysts noted that global bond markets are experiencing a steepening yield curve, with falling demand for long-term bonds even as supply continues to rise.

Tuesday’s 2-year Treasury auction and Wednesday’s 5-year auction were well-received — highlighting a growing divergence between investor preferences for short-term vs. long-term debt.