US 10-Year Treasury Yield Extends Gains Amid Fed Chair Uncertainty

The yield on the 10-year US Treasury note steadied around 4.7% on Tuesday as investors continued to assess the implications of the Treasury Department’s expanded debt buyback program. Reports suggested that the US government may tap its cash account to finance the increased buybacks, marking a shift as such purchases are typically intended to be cash neutral and have been funded through new issuance. Treasury Secretary Scott Bessent on Monday refrained from providing further signals on a potential revamp of US debt management, while reassuring markets that auction sizes for bonds would not be reduced. Meanwhile, markets speculated that the plan may offer only a temporary solution, renewing concerns over the risks of a US debt crisis and dollar weakness. Elsewhere, investors looked ahead to the latest US PCE price index data and Fed Chair Kevin Warsh’s speech at the annual Jackson Hole symposium this week for fresh clues on the monetary policy outlook.

The yield on the 10-year US Treasury note eased to 4.7% on Monday, tracking lower crude prices, but remained close to the 20-month high of 4.75% reached in the previous session. Persistent concerns over wider fiscal deficits and heavy corporate debt issuance continued to put upward pressure on long-term yields. The US Treasury said it would double liquidity-support buyback operations for longer-dated bonds. CNBC reported that Treasury Secretary Scott Bessent could use nearly $1 trillion from the Treasury’s General Account to help fund the buybacks rather than issue short-term bills, raising concerns over further dollar weakness. On the geopolitical front, the US expanded secondary sanctions targeting entities and countries maintaining business ties with Iran. Bessent warned that a major financial institution could face sanctions this week and suggested China would not be exempt.

The yield on the 10-year US Treasury note was above 4.7% on Monday, remaining close to the 20-month high of 4.75% last session as wider deficit spending and soaring supply of corporate debt continued to lift long-term bond yields. The Treasury stated it would use its general account balance to increase the buyback of long-term securities. This added to efforts to compress yields after the joint intervention on the Japanese yen by selling euros and the request for the Fed to increase the limit on its FIMA facility. Yields on the longer end of the curve had surged since July amid soaring debt issuance from AI companies and higher deficit spending by the federal government. Long-term yields also rose after Fed Chairman Warsh signaled that a rate hike may not be his preferred tool to combat higher inflation, increasing the stakes of his speech in Jackson Hole. Concerns of unanchored inflation were magnified by high energy prices during the US-Iran blockade of tankers in the Persian Gulf.