Long-maturity US Treasury yields rebounded on Thursday, erasing the previous day's decline that followed the Treasury Department's announcement of a larger bond and note buyback. The yield on the 10-year note rose to 4.7%, nearing its 20-month high, while the 30-year bond yield climbed to 5.25%. This move suggests that investors perceive the Treasury's plan to reduce borrowing costs as only a temporary solution.
The Treasury had stated its intention to at least double its long-maturity buybacks to $4 billion next quarter, a measure aimed at compressing yields. This effort comes after a joint intervention on the Japanese yen through euro sales and a request for the Federal Reserve to increase the limit on its FIMA facility. However, the market's reaction indicates skepticism about the long-term effectiveness of these actions.
Treasury Secretary Scott Bessent had indicated that accelerated debt buybacks could exceed the announced $4 billion per issue and highlighted an upcoming fiscal plan. Despite his assurances that the US budget deficit has likely peaked under President Donald Trump, concerns about underlying issues such as unsustainable fiscal deficits and rising inflation expectations persist among analysts. JPMorgan analysts noted that the buyback announcement does little to address these fundamental problems.
Longer-dated Treasury yields have been on an upward trend since July, driven by increased debt issuance from AI companies and rising federal deficit spending. Additionally, higher oil prices, fueled by the US-Iran blockade of tankers in the Persian Gulf and the preparation of new economic sanctions against Iran, have magnified inflation concerns. Fed Chairman Warsh's signaling that a rate hike might not be his preferred tool to combat higher inflation further contributed to the rise in long-term yields.
