The US Treasury Department urgently took steps to stabilize the bond market! The scale of long-term US bond repurchases has at least doubled, and US bond yields have declined across the board

The Zhitong Finance App learned that at a time when long-term US bond yields have recently climbed to a high level for many years, the US Treasury unexpectedly announced that it will step up repurchases of long-term US bonds. Just after announcing the current quarter's bond repurchase plan two weeks ago, the US Treasury Department said on Wednesday that it would “at least double the scale of liquidity support repurchase operations” for bonds in the 10-30 year range. US Treasury Secretary Bezent launched a bond repurchase program last year and sees it as part of the Treasury's “complete set of tools that can be introduced when necessary” to deal with disruptions in the US bond market.

After the news was announced, US bond yields fell across the board for various maturities. Among them, as of press release, the 30-year yield fell 9 basis points to 5.19%; the yield on 10-year US Treasury bonds, the “anchor of global asset pricing,” fell more than 6 basis points to 4.644%.

The US Treasury said in a statement: “This increase in the scale of repurchase operations reflects the Treasury's desire to provide greater liquidity support in the field of long-term nominal bonds. Market participants continue to show strong subscription interest in these areas, as evidenced by the fact that the Ministry of Finance often receives a large number of high-quality offers during long-term bond repurchase operations.”

John Briggs, head of US interest rate strategy at Natixis North America, said, “The key here is timing. In my opinion, this is no accident, so what is more important is the signal it sends. If yields rise too high, the Treasury will try to contain them — and now we know where some key points could cause pressure.”

The US Treasury announced this major news at a time when market concerns have intensified due to the recent wave of global long-term government bond sell-offs. In early trading on Tuesday, the 30-year US Treasury yield hit a new high since 2007, at 5.32%, up about 46 basis points from the end of June; the 10-year US Treasury yield hit 4.74%, with a cumulative increase of 35 basis points since summer, approaching an 18-month high.

Government bonds from many countries other than the US are also under pressure, and yields on treasury bonds in many markets have reached or are close to decades-long highs. Among them, Germany's benchmark 10-year treasury bond yield hit a 15-year high; French 10-year treasury yield reached the highest since 2008; and Japan's 10-year treasury bond yield rose to 2.941%, breaking through the 30-year high set this spring. The yield on British, Italian, Swiss, and Canadian treasury bonds of various matures also soared sharply.

Although each country's bond market is affected by local factors, the structural forces driving upward yields are in fact common globally. On the one hand, markets worry that an increasingly divided world order will make economies more vulnerable to supply shocks, and inflationary pressure will continue; on the other hand, bondholders worry that it will be difficult for governments to control fiscal spending, forcing interest rates to remain high for a longer period of time.

In this “storm,” nothing attracted more attention than US Treasury bonds. Against the backdrop of recent market expectations of the Fed's interest rate hike cooling down, the key reason why long-term US bonds are still being sold off is the risk premium. Holding long-term US bonds means facing repeated fiscal supply, inflation, and policy uncertainty, so the compensation required by investors has increased markedly. Furthermore, uncertainty about the Fed's policy communication is also seen as one of the new factors in the rise in long-term US debt risk premiums. Major tech giants turning to the bond market to seek financing have also led to a shift in demand for US bonds in part.

Dan Cotsworth, head of marketing at AJ Bell, said on Tuesday that efforts to end the war have failed repeatedly, and investors are now most concerned about the risk of inflation and potential interest rate hikes. But he added, “The rise in long-term bond yields is not only due to interest rate hikes and inflation expectations. It also reflects market concerns that the scale of government borrowing is too high, and investors are demanding higher compensation before they are willing to hold long-term treasury bonds.”

Deutsche Bank analyst Jim Reed pointed out that the decline in the bond market over the past few days was not driven by a single incident. “However, the US and Iran have seen no signs of reaching an agreement, so the time for investors to start pricing the blockade of the Strait of Hormuz will be further extended. The market expects oil prices to remain high for a longer period of time. Concerns about the long-term blockade of the Strait of Hormuz have intensified, putting pressure on the fixed income market, and the impact on long-term sovereign bonds is particularly obvious.”

Meanwhile, traders are also preparing for a new $16 billion 20-year treasury bond auction. On Wednesday local time, the US Treasury will issue 20 billion US dollars of 20-year treasury bonds, of which about 16 billion US dollars will be issued as new bonds to investors.

As long-term US bond yields have continued to rise recently, this auction is becoming an important window for the market to observe investors' ability to withstand US financial conditions and debt supply. The core issue the market is that as the US government's demand for loans continues to expand, how much interest will need to be paid in the future to continue to attract global capital to buy US Treasury bonds. Over the past week, the US Treasury bond market has sent a similar signal — the winning yield on 10-year Treasury bonds issued by the US Treasury reached 4.683%, the highest level in 19 years; the yield on 30-year treasury bonds auctions reached 5.216%, the highest level in 25 years.