Global bond yields retreated from multi-decade highs, the dollar tumbled and gold jumped yesterday after the US Treasury Department said it would boost liquidity support for longer-dated securities, following a broad selloff fueled by fears over swelling sovereign debt.
The US Treasury Department said it would double the size of liquidity support buyback operations for longer-dated nominal coupon securities to at least $4 billion per operation from $2bn.
US long-dated government yields fell by as much as 10 basis points, dragging European government bond yields down too. US long bonds had hit their highest in nearly 20 years on Tuesday, at nearly 5.34 per cent, reflecting growing concerns about inflation and high debt. The drop in yields boosted stocks. The Nasdaq Composite gained 0.39pc, the S&P 500 was up 0.58pc and the Dow Jones Industrial Average rose 0.58pc. MSCI’s gauge of stocks across the globe increased 0.18pc.
The dollar index, which measures the greenback against a basket of currencies, including the yen and the euro, fell 0.71pc to 98.93, with the euro up 0.74pc at $1.166. Spot gold spiked 3.42pc to $4,481.85 an ounce.
“I think it goes to show a pretty strong acknowledgement from the administration that there’s an inconsistent amount of demand, especially in off-the-run securities in the very back end of the Treasury curve,” said Michael Lorizio, head of US rates and mortgage trading at Manulife Investment Management in Boston.
The Treasury launched the buyback program in May 2024 to help improve liquidity in the $32 trillion Treasury market, with so-called off-the-run securities – older issues that trade less frequently – seeing the weakest demand.
Yields rise when bond prices fall. Because long-end sovereign yields act as a benchmark for the pricing of nearly every other asset class, including mortgage rates, sharp increases in yields pose a broader risk to the economy.
Oil prices gained as the prospect receded of a deal to end the conflict in the Middle East.
US crude rose 1.55pc to $86.26 a barrel and Brent rose to $92.07 per barrel, up 1.15pc on the day. Long-term borrowing costs from the US to Germany and Japan have soared as investors grow increasingly anxious about ballooning government debt and elevated inflation, pressures compounded by the Iran conflict’s impact on oil prices.
German and French long-dated bond yields, which had earlier risen to their highest in 15 and 18 years respectively, traded lower on the day .
“What we’ve seen in the course of recent days is that the long end of the bond market has obviously been selling off and potentially becoming somewhat problematic for the play through to other asset classes,” Jeremy Stretch, head of G10 FX strategy at CIBC, said.
“Clearly, the Treasury Secretary has to be mindful of those risks and has made adjustments. That’s why we are (now) seeing US 30-year Treasury yields down sharply and the dollar cheapening.”
A rise in Japan’s benchmark 10-year bond yield towards 3pc, a three-decade high, is also a warning sign for global debt markets that for years have depended on low Japanese rates driving a constant flow of Japanese investment abroad.
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