Global bonds steady after US Treasury doubles long-duration buybacks
US Treasury's move to double long-bond buybacks calms markets, pulling yields down and lifting stocks, though debt concerns persist.
Global bond markets found their footing on Thursday after the US Treasury stepped in to calm a sharp selloff, announcing it would double the size of its buyback operations for long-duration debt. The move helped pull yields back from multi-decade highs that had rattled investors earlier in the week.
The 30-year US Treasury yield slipped to 5.1890% in early Asian trading, following a 9-basis-point decline in the previous session. The benchmark 10-year yield eased to 4.6466% after a 5-basis-point drop on Wednesday.
Analysts noted the timing of the announcement was seen as a signal that officials were alert to pressure in long-end borrowing costs. While the move did not change underlying fundamentals, it sharply flattened the yield curve overnight.
Similar relief spread across other major markets. Japan's 20-year government bond yield fell 7.5 basis points to 3.700%, while the 10-year JGB yield slipped 4.5 basis points. German bund futures and French OAT futures also ticked higher, implying lower yields.
The selloff had been driven by growing unease over mounting government debt, compounded by heavy AI-related borrowing from technology companies and elevated oil prices. Investors, however, remained sceptical about the durability of the Treasury's support.
One chief investment officer compared the buyback to a company repurchasing shares before issuing more, suggesting the market was unlikely to be convinced for long. The more the Treasury intervenes, the more selling from institutional holders it may induce, he warned.
Equities rebounded on the improved sentiment. MSCI's broadest index of Asia-Pacific shares outside Japan and Japan's Nikkei each rose 1.2%. Nasdaq futures advanced 0.5%, while S&P 500 futures edged 0.16% higher.
The retreat in yields weighed on the dollar, which languished near a 2-1/2-month low against a basket of currencies. The euro held near its highest level since late May at $1.1674, while sterling steadied at $1.3600.
Minutes from the Federal Reserve's latest meeting, released Wednesday, showed deepening concern about inflation, with several policymakers ready to raise rates and many saying a hike would be needed if inflation does not ease toward the 2% target. Attention now turns to the Fed chair's speech at the Jackson Hole symposium next week.
In commodities, Brent crude rose 0.33% to $91.92 a barrel, while US crude held at $85.81. Shipping through the Strait of Hormuz slowed as most owners avoided the waterway amid uncertainty over its reopening. Spot gold slipped 0.6% to $4,492.56 an ounce.