US Dollar: Policy-driven yield retreat – UBS

UBS' chief economist Paul Donovan notes that the United States (US) Treasury’s plan to at least double purchases of long-term US government bonds triggered a rally, pushing 10-year yields down to levels seen a week ago. Donovan argues higher yields worsen the US affordability crisis and debt service costs, and says this new policy aims to offset unintended bond market effects from the Gulf war and tariffs.

Treasury buying shifts yield dynamics

"The announcement that the US Treasury would “at least double” purchases of long-term US government bonds sparked a rally; 10-year yields fell to levels not seen for a whole week."

"Higher yields impact the US affordability crisis and debt service costs, making them a political focus. This policy is to counter the (presumably unintended) consequences for bond markets of other policies like the Gulf war and tariffs."

"The narrative around the bond market may be biased by commentators’ aversion to other administration policies (using bond market reactions to argue against war or tariffs)."

"US government debt as share of GDP is below record levels, and debt as a share of private wealth, an important metric for debt financing, is low."

"Federal Reserve policy uncertainty may add a financial market risk premium. The last Fed meeting’s minutes showed Fed Chair Warsh proposing fewer policy meetings—an unusual idea at a time of increased structural change."

"Most Fed members wanted unchanged rates, but with concerns about inflation persistence. Changes to the calculation of US inflation will help to lower it."

"US initial jobless claims may get a flicker of investor interest today."