US Treasury’s bond market move leaves investors expecting more
The US Treasury’s doubling of buyback operations for longer-dated bonds from $2bn to $4bn per operation between September and early November is unlikely to be a one-off move.
Treasury yields have eased back from highs not seen since the global financial crisis, while assets sensitive to dollar liquidity such as gold and crypto have surged.
Investors now have to assess whether Donald Trump’s Treasury Secretary Scott Bessent has launched an ongoing policy tool he will keep returning to, or just taken an isolated measure.
Given the scale of the sums involved in the US government bond market, a ‘one and done’ seems to be a long shot. There is likely to be significant political pressure from the President. With the Federal Reserve’s options limited by persistent inflation, managing yields may stay on Bessent’s desk for some time.
Susannah Streeter, chief investment strategist at Wealth Club, said: “Trump’s tinkering with Treasuries has calmed bond and equity markets, for now, but fundamental pressures remain, with the US national debt reaching record levels and inflationary pressures still bubbling.
“The major Treasury buyback intervention was launched after a feverish jump in long-dated debt yields, which was making the US debt mountain even more expensive to maintain. It was also threatening to push up the price of borrowing for companies, given how loans are linked to bond market movements.
“America’s national debt has more than doubled in a decade to reach $40 trillion dollars, just as the war with Iran has pushed up energy costs and threatens to spill over into knock-on price rises for goods and services,” Streeter continued.
“But this could prove to be a sticking plaster which could be rapidly ripped off, given that bond vigilantes are on such high alert.”
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David Roberts, head of fixed income at Nedgroup Investments, said: ”Economic pressures from rising oil prices meant the Federal Reserve has struggled to cut rates and create a consumer feel-good factor. Meanwhile, the Treasury needs Congressional approval before it can do much in the debt market, leaving bonds at the mercy of vigilantes.
“Treasury Secretary Bessent needed to find a creative way to support the market, not least as the US housing market is crumbling under the pressure of mortgage rates.
“Surveys suggest record shorts in US bonds, especially in long maturities. Within minutes of the announcement, long bonds had risen significantly, wiping out recent losses.
”At time of writing, yields are still near 20-year highs. That gives scope for further material gains. Will that materialise? Some of those short the market will be forced to buy, but that could dissipate quickly.”
Dan Coatsworth, head of markets at AJ Bell, added: “Based on average salaries, it would take a US worker more than 615 million years to earn the equivalent of America’s $40trn national debt, which itself has doubled in a decade. That debt figure is merely the principal; the interest bill alone now runs to around $1trn a year.
“This week’s intervention by the US Treasury to bring down yields on long-term US government bonds may have had the desired effect in the short term. However, the US national debt reaching such eye-watering levels will concentrate minds on deficit risks in the world’s largest economy.”
