The global bond market is experiencing one of the most intense sell-offs in decades, while the U.S. market is about to face two major stress tests on the same day.

In the early morning of August 20 Beijing time, the U.S. Treasury will auction $16 billion in 20-year bonds, and the minutes from the Federal Reserve's July meeting will be released at two o'clock in the morning. These two events weigh on different positions of the yield curve— the former relates to long-term interest rates, while the latter impacts short-term expectations.

The scenario that worries the market the most is a weak auction and hawkish minutes landing on the same day, creating a mutually reinforcing effect that pushes the entire yield curve upwards, which may then spread to tech stocks, emerging markets, and highly leveraged trades.

Prior to this, global long-term interest rates have approached their highest levels in many years, even decades. The yield on U.S. 30-year Treasury bonds reached a high of 5.327% during Tuesday’s trading, the highest since June 2007; the 10-year yield rose to 4.747%, a new high since January 2025. Meanwhile, U.S. stocks have fallen for three consecutive trading days, with the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average all under pressure.

This 20-year bond auction will be priced at a yield close to 5.28%—this is the secondary market rate for 20-year bonds on Tuesday and the highest borrowing cost for this maturity since the restart of its issuance six years ago.

The significance of this auction has already surpassed the scope of routine financing operations. The fiscal deficit for the current fiscal year has approached $1.8 trillion, and the total size of U.S. government debt is about to exceed $40 trillion for the first time. The winning yield of last week’s 30-year Treasury bond auction was as high as 5.216%, the highest in about 25 years. The Congressional Budget Office also raised its budget deficit forecast for fiscal year 2026 to $2.1 trillion, which is $200 billion higher than its prediction in February.

What the market really needs to test is whether buyers will return to the table at such high yield levels. If the final winning yield is significantly higher than the pre-auction level and bidding demand is weak, it would indicate a further deterioration in the long-term debt supply-demand relationship, leading to greater upward pressure on long-term yields.

According to Yulia Alekseeva, head of fixed income at MissionSquare, concerns about the fiscal deficit are the "most significant and persistent driving force" behind the recent long-term bond sell-off. She also pointed out that the massive corporate bonds issued by "hyperscalers" for data center construction are exacerbating supply pressures. Data from Goldman Sachs’ trading desk show that the issuance of AI-related bonds has reached $489 billion, and the scale of bond supply pressure has prompted warning from Rich Privorotsky, head of European spot trading at Goldman Sachs:

"To some extent, the Fed may even be forced to raise interest rates in a context of weakening data to flatten the yield curve and re-anchor long-term rates."

The market weight of the Fed’s July meeting minutes is much greater than before.

Since Jerome Powell became chairman, he has significantly reduced forward guidance, making policy statements shorter, and press conferences less informative. Michael Gregory, deputy chief economist at BMO Capital Markets, noted in a client report that in the new landscape where "policy statements are short, press conferences lack clarity, and forward guidance is diminished," the importance of the minutes has significantly increased. FHN Financial macro strategist Will Compernolle also stated that the minutes "could reveal internal discussions from Walsh's vague press conference last month that were not disclosed."

The July meeting left an obvious suspense: the Fed kept rates unchanged at 3.5% to 3.75%, but three of the twelve voting members directly supported a rate hike. Mizuho’s U.S. economist Alex Pelle expects that these three votes are just "the tip of the iceberg," and the minutes will show that the group supporting a rate hike among the 19 senior officials is broader than public perception. "Since the beginning of the year, each Fed meeting has had more hawkish officials," Pelle noted.

The June minutes presented two paths: if inflationary pressures ease quickly, most officials prefer to keep rates unchanged and eventually ease policy; if AI-related spending, Middle Eastern conflicts, and tariffs continue to push inflation higher, most officials believe further rate hikes may be necessary. Kurt Lewis, head of central bank policy at Piper Sandler and a former Fed official, pointed out that this means that more than half of the committee members are considering both scenarios, which is "significant."

Currently, the Atlanta Fed’s market probability tracking tool shows that the probability of a rate hike in September has dropped from 82% after the July meeting to 59%, with recent soft inflation data being the main reason. However, if the minutes show that hawkish forces are stronger than the market expects, the recently cooled expectations for rate hikes may reignite.

BTIG chief technical strategist Jonathan Krinsky warned in a report: "We believe the stock market is not prepared for a rapid rise in long-term yields—such as 30-year yields approaching 6%." He pointed out that since the beginning of August, the 30-year Treasury yield has broken out of a three-year range, and technical signals indicate that this round of sell-off has not ended.

BNY’s currency and macro strategist John Velis commented that the surge in long-term interest rates is driven by both the long-term direction of monetary policy and a surge in capital spending in technology and AI. "This does not directly crowd out Treasury investments but is broadly raising capital costs," he said.

Historically, according to statistics from X account Oddstats, the only time that 30-year Treasury yields rose from the 4% range to the 6% range within six months occurred in June 1999. Less than four months later, the S&P 500 index fell into a correction range; nine months later, the index recorded its last historical peak before the burst of the dot-com bubble. It is noteworthy that the 30-year yield was less than 4.6% in March of this year.

If hawkish minutes coincide with a weak auction, the logical consequences are clear: short-term rates will be pressured by rising rate hike expectations, while long-term rates will continue to rise due to insufficient demand for long-term bonds, leading to a repricing of the entire yield curve. High-valuation tech stocks will be the first to bear the brunt—an increase in long-term rates raises discount rates while lowering the theoretical valuation of stocks, and the rise in short-term rates means that corporate financing costs will also climb.

This round of bond market storm has spread to major developed economies. The yield on German 30-year bonds rose to a 15-year high of 3.763%, the yield on French bonds of the same maturity reached the highest level since 2008, and the yield on Japanese 30-year bonds climbed to 4.1285%, surpassing the 30-year high set earlier this spring. According to compiled data from Bloomberg, the average yield on investment-grade sovereign bond benchmarks has surged to about 4.5%, the highest on record since 2015.

Luis Alvarado, co-head of global fixed income research at Wells Fargo Investment Institute, stated, "Almost all major fixed income markets are experiencing the same trend; the deficit issue is global and not unique to the U.S." However, he also emphasized that the size of the U.S. Treasury market far exceeds the total of Japan, the UK, the EU, and other Asian bond markets, hence the U.S. issues have stronger transmission effects.

Charles Luke, chief investment officer at City National Bank and RBC Rochdale, pointed out that as global interest rates rise, some funds are flowing back to other markets, "this naturally puts some pressure on overseas buyers of Treasuries." He candidly stated, "I think the Treasury is indeed a bit nervous right now."