The US Treasury Department had announced on Wednesday plans to “at least double” its sovereign bond buy-backs after the 30-year yield surged on Tuesday to near two-decade highs.
While the announcement had pushed rates lower on Wednesday, yields ticked higher again on Thursday in a sign that analysts said showed scepticism that the plan would succeed.
In a mid-morning interview on Thursday, Bessent told CNBC that the Treasury has a “big toolkit” to address a rise in yields that it views as unmoored to financial conditions. Such measures could include increased bond purchases beyond the scale announced the day prior.
“We think that this is a thinly traded area of the market, that we’re in August, and there’s been a lot of corporate issuance that’s influenced the market,” Bessent said. “We believe that the yields don’t reflect the underlying fundamentals.”
Bessent told the network that concerns about inflation would ease once the United States gets “on the other side” of the Iran war and oil prices retreat.
The yield on the 30-year US Treasury bond bounced to 5.24 percent, above the 5.19 percent on Wednesday, but lower than the 5.33 peak on Tuesday.
Thursday’s increase in yields reflects the market’s view that the bond purchases “are more band-aids for deeper problems going on in the economy,” said Arun Sundaram, senior vice president at CFRA Research.
Analysts have seen the jump in yields as reflective of several dynamics, including high oil prices due to the Iran war, a surge in costly artificial intelligence investment and a flood of US government issuance because of the deficit.
Sundaram also pointed to uncertainty about new Fed Chair Kevin Warsh, who has signalled the Fed will offer less guidance on future actions.
Eyes are now on next week’s annual meeting of central bankers, economists and finance chiefs in Jackson Hole, Wyoming, where investors will be hoping for some idea about Warsh’s thinking on the outlook for rates.
“The unscheduled announcement yesterday was a clear indication of the Treasury’s discomfort with the recent sell-off” of longer-date US bonds, said Fawad Razaqzada, market analyst at FOREX.com.
But “Ultimately, a more structural solution – particularly fiscal consolidation – would be needed to deliver a sustainable improvement in the bond market,” he said. (AFP)
