US bond yields climb again as Treasury buyback plan faces early scepticism
The 30-year Treasury yield rose to 5.27 per cent, erasing most gains since the US Treasury Department announced its bond buyback programme, while the 10-year yield climbed above 4.73 per cent.
US bond yields increased for a second consecutive day on Friday, reversing nearly all of the gains recorded since the US Treasury Department announced its intervention to lower borrowing costs. The 30-year Treasury yield rose by approximately two basis points to 5.27 per cent at midday, inching back toward the 5.3 per cent level that had spooked markets earlier in the week. Simultaneously, the 10-year yield climbed by nearly three basis points to exceed 4.73 per cent.
The Treasury Department stated on Wednesday that it would at least double the amount of 10-year, 20-year, and 30-year Treasury bonds it buys back. Treasury Secretary Scott Bessent indicated the following day that the Department could expand these purchases further. The operation is scheduled to commence on 9 September and remain effective through 4 November.
Despite the planned intervention, market analysts remain sceptical about the measure's effectiveness. BNP strategists led by Guneet Dhingra wrote in a note this week that they believe the measures will struggle to offset either declining Federal Reserve credibility or rising rate expectations. Factors contributing to higher yields include inflation fears, changes in Federal Reserve communication, and a surge in corporate debt issuance.
The rising yields also complicate the task facing Federal Reserve Chairman Kevin Warsh, who has suggested he welcomes higher yields as a method to tighten policy through markets rather than raising short-term rates directly. Wilmington Trust senior bond portfolio manager Wil Stith noted that the Federal Reserve and the Treasury are working in opposite directions, suggesting the Fed may need to adjust the target federal funds rate more than previously anticipated.
The timing of the intervention has been further complicated by data released by the Treasury Department this week showing that the US national debt has officially topped $40 trillion. Critics argue that the programme involves issuing new debt to buy back old debt rather than reducing the overall debt load.
Charlie Bilello, chief market strategist at Creative Planning, described the move as debt reshuffling rather than debt reduction, noting that the Department is running huge deficits while buying back old bonds and issuing even more new ones. US stocks remained largely unaffected by the rise in bond yields on Friday.
