U.S. Treasury Takes Emergency Action to Stabilize Bond Market! Long-term Treasury Repo Size at Least Doubled, Treasury Yields Fall Across the Board

According to Zhitong Finance APP, as long-term US Treasury yields recently climbed to multi-year highs, the US Treasury Department unexpectedly announced that it will ramp up buybacks of long-term US Treasuries. Just two weeks after releasing the current quarter's bond buyback plan, the Treasury stated on Wednesday that it will "at least double" the size of liquidity support buyback operations for bonds with maturities of 10 to 30 years. Treasury Secretary Janet Yellen initiated the buyback plan last year, viewing it as part of a "full suite of tools" that the Treasury can deploy as needed to address market disruptions in US Treasuries.

Following the announcement, US Treasury yields fell across all maturities. As of press time, the 30-year yield was down 9 basis points to 5.19%; the 10-year US Treasury yield—the "anchor of global asset pricing"—fell more than 6 basis points to 4.644%.

In a statement, the Treasury Department said: "This increase in buyback operations reflects the Treasury’s aim to provide greater liquidity support in the long-term nominal bond sector. Market participants continue to show strong demand in these areas, as evidenced by the large volumes of high-quality offers regularly received in long-term bond buyback operations."

John Briggs, head of US rates strategy at Natixis North America, commented: "The key here is timing. In my view, this is no coincidence, so the signal it sends is all the more important. If yields rise too much, the Treasury will attempt to contain them—and now we've learned where some of those critical stress points might be."

This major announcement from the US Treasury comes as a global sell-off in long-term government bonds has intensified market anxiety. Early Tuesday, the 30-year US Treasury yield hit a new high since 2007, reaching 5.32%, up about 46 basis points from the end of June; the 10-year yield rose to 4.74%, up 35 basis points since summer, approaching an 18-month high.

Government bonds in countries outside the US are also under pressure, with yields in many markets reaching or approaching multi-decade highs. Germany’s benchmark 10-year Bund yield hit a 15-year high; France’s 10-year yield rose to its highest since 2008; Japan’s 10-year government bond yield climbed to 2.941%, surpassing the 30-year high set earlier this spring. UK, Italian, Swiss, and Canadian sovereign bond yields also saw significant surges across various maturities.

Although local factors influence each nation’s bond market, the structural forces driving yields higher are largely global. On one hand, markets fear that a more fragmented world order will make economies more vulnerable to supply shocks, sustaining inflationary pressure; on the other hand, bondholders worry that governments may not control fiscal spending, forcing rates to remain high for longer.

In this "storm," US Treasuries have drawn the most attention. Despite waning market expectations for further Federal Reserve rate hikes, long-term US Treasury sell-offs center on risk premiums. Holding long-term Treasuries means confronting fiscal supply risk, recurring inflation, and policy uncertainty, prompting investors to demand higher compensation. Additionally, uncertainty in Fed policy communication is cited as another new factor driving up long-term Treasury risk premiums. Large tech firms shifting to the bond market for financing has also diverted some demand away from Treasuries.

Dan Coatsworth, head of markets at AJ Bell, said on Tuesday that repeated failures to end wars leave investors most worried about inflation risks and potential rate hikes. He added: "The upward movement in long-term bond yields is not solely driven by rate hike and inflation expectations. It also reflects market concerns about high government borrowing levels—investors demand higher compensation to hold long-term sovereign debt."

Jim Reid, an analyst at Deutsche Bank, pointed out that the recent bond market slump was not triggered by a single event: "But with no sign of a US-Iran agreement, investors are starting to price in a prolonged closure of the Strait of Hormuz. The market expects oil prices to stay elevated for a longer period. Growing concerns over a long-term closure of the Strait are putting pressure on the fixed income market, with long-term sovereign bonds particularly hard hit."

Meanwhile, traders are preparing for a $16 billion auction of new 20-year US Treasuries. On Wednesday, local time, the Treasury will issue $20 billion worth of 20-year notes, of which about $16 billion are new issues for investors.

Due to the recent persistent climb in long-term Treasury yields, this auction has become an important window for the market to gauge investor sentiment toward US fiscal health and debt supply capacity. The central question for the market is: as US government borrowing needs continue to expand, what level of interest must be paid in future to keep attracting global capital to buy US Treasuries? Over the past week, the market has sent similar signals—the winning yield for the 10-year note auction reached 4.683%, the highest in 19 years, while the 30-year bond auction hit 5.216%, a 25-year high.