US Bond Yields Slide as Treasury Doubles Buyback Support
US 10-year and 30-year yields fell after the Treasury doubled buyback support for long-dated bonds, easing borrowing costs.
Yields on long-dated US government bonds declined on Wednesday morning after the Treasury Department announced it would double the size of its liquidity support buyback operations for longer-dated securities. The move helped ease upward pressure on US borrowing costs, which had been rising amid global concerns over fiscal deterioration, supply shocks, and inflation.
The relief was not confined to the US. Longer-dated euro zone bonds also retreated from multi-year highs reached during a recent global selloff driven by worries over government finances and price pressures.
Market participants welcomed the Treasury's signal that it is prepared to act, though some analysts suggested further measures could follow. Gennadiy Goldberg, head of US rates strategy at TD Securities, described the move as likely the first of several possible actions. He noted that a more permanent solution could involve reducing auction sizes at the long end of the curve.
Attention now turns to the release of minutes from the Federal Reserve's most recent policy meeting. Investors will look for any indication that members of the Federal Open Market Committee are open to a rate hike, especially after Fed Chairman Kevin Warsh declined to offer forward guidance. "Any sort of guidance would be very well appreciated," Goldberg said.
Meanwhile, progress toward resolving the US-Iran conflict remained stalled, and crude prices continued to edge higher. Markets are also watching an upcoming auction of 20-year Treasury bonds.
In early trading, the yield on the benchmark 10-year Treasury note fell 4.9 basis points to 4.655%, while the 30-year bond yield dropped 8 basis points to 5.205%. The two-year yield, which tracks interest rate expectations, rose slightly to 4.181%. The spread between two- and 10-year yields stood at a positive 47.4 basis points.
Inflation expectations, as measured by Treasury Inflation-Protected Securities (TIPS), remained steady. The five-year breakeven rate was 2.287%, and the 10-year breakeven rate was 2.307%, suggesting the market expects inflation to average around 2.3% annually over the next decade.