Goldman Sachs gives a cold shoulder: Treasury buybacks have a "relatively short-lived" effect, cooling inflation is the "best remedy" to push down US Treasury yields.

According to Golden Ten Data APP, the US long-term Treasury bond market has recently experienced a fierce sell-off, with the yield on 30-year Treasuries once soaring to its highest level since 2007. On Friday, the yield remained essentially flat at 5.25%. Faced with rapidly escalating borrowing costs, the US Treasury has taken emergency action by announcing that the scale of long-term Treasury repurchase operations will be expanded by at least double. However, Goldman Sachs is not optimistic about the effectiveness of this measure, bluntly stating that without a fundamental shift in macroeconomic fundamentals, the Treasury’s efforts are unlikely to be sustained. Goldman Sachs points out that although the US Treasury is striving to stem the rise in borrowing costs, cooling inflation remains the most convincing way to bring down bond yields.

Goldman strategist Friedrich Schaper wrote in a research report that in the absence of a fundamental shift in the drivers of US macro fundamentals, the Treasury’s plan to ramp up debt buybacks may have only a “relatively short-lived” impact.

This round of long-end US Treasury selling pressure is being fueled by multiple factors. First, US fiscal deficits are elevated, with federal government debt approaching a record $40 trillion. Net issuance of Treasuries continues to rise, while demand-side absorption capacity is showing signs of marginal change, tightening the supply-demand relationship for Treasuries.

Latest data show that net purchases of US Treasuries by private foreign investors have declined for the first time in three years, with a year-on-year drop of over 40%. Secondly, energy disruptions caused by Middle East tensions have driven Brent crude back above $90 per barrel, and renewed inflation concerns have heightened market demands for compensation on long-duration assets. Additionally, a boom in the AI industry has triggered large-scale corporate bond issuance, further competing with Treasuries for capital.

US Treasury Secretary Scott Bessent said on Thursday that he is ready to expand buybacks of high-cost debt, and that the government will introduce a new fiscal measure to address the highest borrowing costs in years. The previous day, the US Treasury had just announced it would “at least double” the scale of long-term Treasury repurchases.

Schaper noted that while there have been some encouraging economic data recently—such as retail sales missing expectations, disappointing employment figures, and moderate core inflation in July—the market remains “relatively more focused on upside risks” regarding Treasury yields.

Schaper wrote: “In our view, under current conditions, the steady accumulation of benign inflation data—which will boost market confidence that the Federal Reserve will remain on hold and drive a return of risk appetite—remains the clearest path to lower yields.”