US Treasury Yields Hold Rebound

The 10-year US Treasury yield traded around 4.7% on Friday after rebounding sharply in the previous session amid concerns that the government’s plan to reduce borrowing costs may provide only a temporary solution. The 30-year yield also climbed to around 5.25%, nearly erasing Wednesday’s decline after the US Treasury Department announced larger debt buybacks. The moves came despite Treasury Secretary Scott Bessent saying that accelerated debt buybacks could exceed the announced $4 billion per issue and highlighting an upcoming fiscal plan, while adding that the US budget deficit has likely peaked under President Donald Trump. Longer-dated Treasury yields have surged since July amid increased debt issuance by AI companies and rising federal deficit spending. Meanwhile, higher oil prices as the US prepares sweeping new economic sanctions against Iran also added to inflation concerns.

Long-maturity Treasury yields rebounded on Thursday to erase the drop after the Treasury Department announced its larger bond and note buyback. The yield on the 10-year note rose to 4.7%, 5bps away from the 20-month high this week, and that on the 30-year bond rose to 5.25%. The Treasury stated it would at least double its long-maturity buybacks to $4 billion next quarter, adding to its efforts of compressing 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. Concerns of unanchored inflation were magnified by elevated energy prices during the US-Iran blockade of tankers in the Persian Gulf.

Long-term Treasury yields held their sharp decline after the Treasury Department announced plans to double the size of buybacks for long-dated securities. The 10-year Treasury yield traded around 4.64% after reaching a 20-month high of 4.75% earlier this week, while the 30-year yield fell below 5.2% after hitting a 19-year high of 5.34%. The government said it would at least double the size of liquidity-support buyback operations covering securities with maturities ranging from 10 to 30 years. Scott Bessent previously described the buyback program as an important tool for addressing market dislocations and improving liquidity. Treasury bonds came under heavy pressure in August as surging AI-related debt issuance, rising deficit spending and concerns over persistent inflation pushed up estimates for term premia. Meanwhile, minutes from the Fed’s July meeting confirmed that some policymakers favored raising rates this year to prevent stronger inflationary pressures from emerging later.