The US 10-year Treasury yield attempts to stabilize on Thursday, edging higher to 4.672% at the time of writing after hitting a low of 4.635% on Wednesday. The move comes after Treasury yields fell sharply following the United States (US) Department of the Treasury’s surprise announcement regarding its long-dated debt buybacks.
The Treasury announced on Wednesday that, starting September 9, it will double the size of its liquidity-support buyback operations for maturities ranging from 10 to 30 years, increasing them from $2 billion to at least $4 billion per operation. The announcement helped interrupt the recent surge in yields, which had pushed the 10-year yield close to 4.75% on Tuesday and the 30-year yield toward its highest levels since 2007.
According to ING, the timing of the announcement is particularly noteworthy, as the Treasury had published its quarterly buyback schedule only two weeks earlier. The bank argues that the decision could signal to investors that authorities are closely monitoring the rise in long-term yields and are prepared to act to ease market tensions.
The longer-term impact could nevertheless remain limited. ING notes that the $4 billion involved is small compared with issuance volumes and the overall amount of US debt outstanding. The buybacks also do not represent structural bond purchases, as they ultimately need to be refinanced. Kieran Davies of Coolabah Capital similarly argues that significantly larger purchases would generally be required to have a lasting impact on yields.
The stabilization in yields comes as the US Dollar (USD) remains under pressure despite the more hawkish Federal Reserve (Fed) Minutes released on Wednesday. The US Dollar Index (DXY) declines another 0.10% on Thursday to 98.70 at the time of writing, extending Wednesday’s fall. Lower US yields are weighing on the Greenback, although persistent fiscal and inflation concerns could limit the Treasury intervention’s ability to keep long-term rates contained over time.
