With the 30-year Treasury yield breaking above the critical 5% threshold, Bank of America has floated an unconventional plan to overhaul how the U.S. sells its debt.
The U.S. Treasury is facing a crisis of demand for its long-term debt, prompting Bank of America Corp. strategists to propose a "reverse inquiry window" that would allow direct sales to investors as the 30-year bond yield surpassed 5 percent for the first time since 2025. The move reflects growing anxiety over sticky inflation and a U.S. fiscal situation that many investors see as unsustainable.
"I don’t see the 10-year or the 30-year getting cheaper from here," said Will Compernolle, a macro strategist at FHN Financial, who sees the instinct to buy bonds on dips remaining strong despite higher energy prices potentially denting the U.S. economy.
The numbers underscore the market's anxiety. The 30-year yield's move above 5 percent—a level breached only briefly in October 2023 and May 2025—comes as data shows U.S. interest payments have tripled from pre-pandemic levels to $1.22 trillion annually. Bank of America notes the 30-year Treasury now offers a yield premium of roughly 85 basis points over equivalent swaps, reflecting a significant concession for long-term government debt.
Persistently high yields threaten to increase borrowing costs across the economy, from mortgages to corporate debt, while ballooning the nation's interest expense on its more than $39 trillion debt load. The BofA proposal, while unofficial, signals that the Treasury may be forced to consider radical strategies to manage its borrowing needs amid waning investor appetite.
A Bespoke Window for Bond Sales
Bank of America's proposal would create a supplementary channel for debt issuance, moving away from the Treasury's rigid, auction-based "regular and predictable" framework. Under the plan, the Treasury would open a window to sell bonds directly to investors who make specific requests for a certain maturity and size.
The proposed framework includes:
- Eligible Securities: 10-year notes and longer-term bonds.
- Minimum Size: Single transactions of approximately $100 million.
- Pricing: Based on existing market curves plus a small service fee of around 5 basis points.
This mechanism is common in corporate credit markets and is already used by U.S. government-supported enterprises like Fannie Mae and Freddie Mac. However, it would be a first for a major sovereign debtor. The goal is to more accurately match supply with pockets of end-user demand, potentially reducing the government's overall borrowing cost and alleviating pressure on the traditional auction system.
Demand Wanes as Supply Swells
The proposal comes as the Treasury confronts a structural imbalance: a swelling supply of debt and weakening demand from traditional buyers. Concerns over U.S. fiscal discipline, stubbornly high inflation, and periodic bouts of extreme market volatility have eroded the appeal of long-duration government bonds.
"The bond market is discounting higher inflation and a Fed that stays on hold or may even have to tighten," Ed Yardeni, president of Yardeni Research, wrote in a recent client note.
While the Treasury has previously considered and rejected similar ideas, most notably after the 2013 "taper tantrum," the current environment may force a re-evaluation. The fact that such a departure from decades of issuance strategy is being seriously discussed highlights the mounting pressure on policymakers to ensure the U.S. can continue to finance itself without triggering a broader economic crisis.
This article is for informational purposes only and does not constitute investment advice.
