US 10Y Yield Edges Higher on Hawkish Fed Outlook

The yield on the 10-year US Treasury note fell to 4.65% on Wednesday after testing 20-month highs of 4.75% in the previous session after the Treasury announced it would double the size of buybacks on long-dated securities. The move would increase the maximum size of operations to at least $4 billion. This was in line with the department's sharp efforts to limit the recent surge in long-dated yields as soaring AI-debt issuance, higher deficit spending, and risks of elevated inflation. Recent measures by the Treasury included a joint intervention with Japan to support the yen by selling euros, as Tokyo's common defense of a weak currency is made of selling long-term Treasury notes and bonds. On top of that, Secretary Bessent called for the Fed to increase its FIMA facility past the threshold of $60 billion, which would allow Japan to access dollar liquidity without selling Treasuries. Meanwhile, minutes by the FOMC due shortly could add insight to the magnitude of a divided Fed.

The yield on the 10-year US Treasury note eased below 4.7% on Wednesday, retreating from recent highs as investors awaited the minutes of the Federal Reserve’s July meeting for fresh insights into the monetary policy outlook. The Fed left interest rates unchanged last month, though three officials dissented in favor of a rate hike, a split that traders will scrutinize for further details. Earlier this week, Treasury yields surged, with the 30-year US Treasury yield reaching a 19-year high, as rising debt issuance and concerns about persistent inflation fueled a selloff in longer-dated bonds. US corporate bond issuance has also remained in focus, with estimates suggesting AI-related companies could issue as much as $1.5 trillion in debt this year. The surge in dollar-denominated fixed-income supply has added to concerns over expanding fiscal deficits in the US and other G10 economies, prompting investors to demand higher term premiums across global bond markets.

The yield on the 10-year US Treasury note rose toward 4.75% on Tuesday, the highest in 20 months, as surging credit supply and risks of entrenched inflation extended the aversion to longer maturity bonds. Corporate debt issuance in the US gained ground on the markets' forefront, with estimates pointing to $1.5 trillion in bonds by AI companies this year. The surge in dollar-denominated fixed-income magnified ongoing concerns of accelerating deficit spending in the US and other G10 economies, raising estimates on the term premia in bond markets worldwide. Meanwhile, oil prices rose further as President Trump signaled there was no rush to end the blockade against Iranian tankers in the Persian Gulf. Higher energy prices had already lifted underlying inflation this year, raising the pressure on Treasuries, as Fed Chairman Warsh spurred worries of inflation complacency after noting a rate hike may not be his preferred tool against inflation.