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US long-term government bonds were hit with a fresh wave of selling on Thursday as Treasury secretary Scott Bessent’s intervention to prop up the market failed to soothe investor jitters.
The yield on 30-year Treasury bonds was up as much as 0.07 percentage points at 5.27 per cent in New York morning trading on Thursday, reversing most of the 0.09 percentage point fall that followed the Treasury announcement on Wednesday. Bond yields move inversely to prices.
The Treasury said on Wednesday it would “at least double” its purchases of securities maturing in 10 to 30 years, increasing such operations from $2bn to “at least” $4bn.
Other global bonds also sold off. The yield on 30-year UK gilts rose 0.02 percentage points to 5.81 per cent after falling 0.05 percentage points on Wednesday.
The selling on Thursday underscores how investors remain deeply concerned over the US’s mounting public debt burden and whether policymakers will be able to contain the eruption of inflation triggered by US President Donald Trump’s war in Iran.
Wall Street analysts, many of whom were surprised by the Treasury buyback plan, said the move was unlikely to be large enough to offset investor concerns. The US national debt reached a record $40tn on Tuesday, according to Treasury department data.
The US dollar, which fell sharply following Wednesday’s announcement, continued its slide on Thursday. An index of the dollar’s value against a basket of its peers fell as much as 0.3 per cent after a 0.8 per cent fall on Wednesday. It later recovered about half of Thursday’s early losses.
Analysts at MUFG said there was a sense that the unscheduled announcement by the US Treasury was “lacking a strategic plan”.
“The danger now following this announcement . . . is that it proves counter-productive and leads to reduced appetite for either holding US assets or reduced appetite for exposure to the US dollar or both,” they said.
They added that Bessent was not following his own advice to focus on policy rather than market signalling by failing to reduce the US fiscal deficit through fiscal consolidation.
Keith Patton, head of global rates and unconstrained fixed income at Columbia Threadneedle Investments, said the announced plan by Bessent was “minuscule” compared with the Fed’s successful quantitative easing programme.
“Such interventions only work if they are followed up with key policy initiatives, especially around spending,” he said. Lower spending was not expected for the “foreseeable future”, he added.
Kit Juckes, global head of foreign exchange strategy at Société Générale, said it was “up for debate” whether the Treasury’s announcement would hold yields down.
“As the US publicly held debt level reaches 100 per cent [of] GDP and budget deficits remain high”, the willingness of foreign investors to buy US assets “will be a growing issue”, he said.
He added that this would “either force the US to tighten fiscal policy, accept higher borrowing costs or let the dollar weaken. No prizes for guessing which solution the market now sees as most likely.”
