Why does the 20 year Treasury bond have a higher yield than the 30 year Treasury bond?

Question

I noticed, as expected that the yield on the 30 year Treasury bond is higher than the yield on the 10 year Treasury bond. I also noticed that the 20 year Treasury bond has a higher yield than the 30 year Treasury bond. I find this fact a bit strange. Why does the 20 year bond have a higher yield than the 30 year bond?

Answer 1

Mostly due to excess supply compared to the demand.

Demand for the 20-year government debt security since its reintroduction in 2020 has been so weak that its price is far out of sync with the rest of the market and it is harder to trade. The price swings and lack of liquidity have made it even less popular with the long-term, conservative investors such as pension funds that would typically be its natural buyers. [FT]

Answer 2

Simplified, the yield on a long term bond is the expected/estimated total market interest over its remaining life time, averaged over the years.

For example, a yield of 4% on a 30-year bond means that the market expects in average 4% interest over the next 30 years.

In your example, the market (=the people trading on the market) expect the average interest to be higher in the next 20 years than in the next 30 years (that basically means they expect the last ten years to be lower than the first twenty).

Any combination is possible, dependent on market expectation. Although not many people can make detailed (and qualified) guesses for the years twenty to thirty years in the future, they do implicitly, by buying or selling such bonds, thereby influencing their price, and thereby producing the yields you listed.