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Rabobank’s Senior US Strategist Philip Marey discusses United States (US) Treasuries, noting that the Treasury Department’s surprise move to boost buybacks of longer-term bonds has only briefly interrupted rising yields. Marey highlights unchanged macro fundamentals such as elevated inflation, widening budget deficits and AI-related investment demand, and argues that unpredictable issuance and limited buyback firepower could ultimately push yields higher and force Federal Reserve (Fed) intervention.

Treasury buybacks and yield dynamics

“The Treasury Department’s extraordinary announcement to unexpectedly boost buybacks of longer-term bonds has only temporarily interrupted the rise in yields.”

“The real question is: can yields be stopped from rising when the macroeconomic fundamentals − elevated inflation, rising budget deficits, AI-related investment demand − remain entirely unchanged?”

“While Congress and the White House actually have the power to address some of these fundamental drivers, the Treasury has resorted to market intervention instead.”

“This introduces a whole new set of complications. By making debt issuance less predictable, it fuels market volatility. Ironically, this could force investors to demand an even higher risk premium on Treasury yields.”

“The ultimate problem with the Treasury’s intervention is that it costs money. For now, the Treasury is funding this by shifting from longer-term debt to shorter-term debt. But with the total federal debt constrained by the debt ceiling, the Treasury will eventually run out of ammunition.”

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