Minneapolis Federal Reserve President Neel Kashkari stated on August 23 that the US Treasury market is functioning normally, exhibiting healthy trading activity and liquidity. He clarified that recent movements in the Treasury market would not prompt Federal Reserve intervention or influence policy decisions, as the Fed's primary focus remains on using the federal funds rate to bring inflation back down to 2%. Kashkari acknowledged that current 10-year Treasury yields, at 4.7%, are high compared to recent history, but not when viewed in the context of America's longer financial history, citing similar levels in the early 2000s and higher levels in the 1990s. He emphasized that various factors, including inflation expectations, artificial intelligence investment, government borrowing, and economic growth, collectively determine long-term Treasury rates.
US Treasury Secretary Scott Bessent echoed this sentiment at the G20 finance gathering in North Carolina, downplaying concerns about bond market turbulence and asserting that the US bond market has been the best-performing globally since President Donald Trump's return to office. He dismissed short-term bond movements, stating that "what happens over a month doesn't matter," and attributed higher yields to energy prices and inflationary pressures stemming from the Iran conflict, which he expects to subside. Bessent also defended the Treasury's decision to double the size of its longer-dated debt repurchases to $4 billion per operation, arguing it aims to manage market volatility rather than distort equilibrium prices.
While Bessent boasted about the US bond market's stability, the 10-year Treasury yield rose to its highest level in nearly 20 months amid a global bond sell-off. Other G7 countries also experienced significant increases, with a Bloomberg gauge indicating G7 government debt yields are at their highest average since September 2000. For instance, Japan's 10-year bond hit 3% for the first time since 1996, UK 10-year government bonds reached their highest since 2008, and Germany's 30-year Bund saw its highest level in 15 years.
The global bond sell-off is largely driven by investors demanding higher compensation for holding longer-maturity debt. Geopolitical turmoil, particularly renewed military strikes in Iran around the Strait of Hormuz, has contributed to rising oil prices and inflation concerns, adding upward pressure on bond yields. Federal Reserve Chairman Kevin Warsh noted the global economy is entering a period of "secular growth," while some critics, like investor Stanley Druckenmiller, expressed skepticism about the Treasury's repurchase plan, calling it a "mistake" that merely postpones a "solvency conversation."
