Treasury Buyback Announcement Boosts Market Sentiment — Market Talk

0740 GMT - The U.S. Treasury's announcement of plans to double the size of its buyback operation of long-dated Treasurys is leading to improved sentiment around global markets, Tickmill Group's Patrick Munnelly says in a note. "The rally shows how quickly sentiment can recover when duration pressure eases, especially in AI-linked markets where valuation sensitivity to long-end yields is high." Ten-year U.K. gilt yields fall 0.5 basis points to 5.042% in early trade, while ten-year German Bund yields fall 0.9 bps to last trade at 3.252%, Tradeweb data show. ([email protected])0726 GMT - Bank Indonesia could raise its policy rate by 25 bps in 4Q, if external and inflation risks renew pressure on the rupiah, CIMB economists say in a note. A narrowing current-account deficit could support the rupiah in 2H, but external factors, including the Fed rate path, dollar strength and oil prices, are likely to remain key currency drivers, they say. Domestic inflation risks are skewed to the upside amid potential El Nino-related food disruptions and Middle East-driven energy price volatility, they reckon. With growth expected to weaken in 2H, CIMB expects BI to remain patient while monitoring global rates and rupiah dynamics.([email protected])0721 GMT - Yields on U.K. government bonds fall, tracking similar moves in their U.S. equivalents after the U.S. announced that they would double the size of their long-dated Treasuries buyback operation starting on September 9. In addition, Wednesday's U.K. inflation data showed a slowdown in services inflation, easing concerns about the possibility of aggressive interest-rate rises by the Bank of England. Ten-year gilt yields fall 1.4 basis points to last trade at 5.033%, Tradeweb data show. ([email protected])0658 GMT - Bitcoin stays elevated after reaching an 11-week high overnight after President Trump urged Congress to pass a crypto regulation bill and the U.S. Treasury announced increased buybacks of long-term bonds. Trump asked lawmakers to pass a "fair version of the Clarity Act" which has stalled in the Senate. His commitment to keeping the U.S. ahead in digital assets and openness to considering recommendations around additional government bitcoin accumulation reduce regulatory uncertainty which has constrained institutional participation, Zaye Capital Markets analyst Naeem Aslam says in a note. The Treasury's buyback announcement pushed yields lower, while consecutive bitcoin exchange-traded inflows strengthened institutional demand, he says. Bitcoin rises 1.1% to $69,831 after reaching as high as $69,994 overnight, LSEG data show. ([email protected])0655 GMT - Eurozone government bond yields edge lower, moving in line with U.S. Treasury yields, in the aftermath of the U.S. Treasury's decision to raise the volume of long-end government debt buybacks. "Bunds continue to show signs of stabilisation after bullish buyback headlines from the U.S. Treasury," Commerzbank's Erik Liem says in a note. Bond supply will come from France, which will conduct two auctions, the first for short- and medium-term nominal bonds and the second for inflation-linked bonds. The 10-year Bund yield falls 1 basis point to 3.251%, according to Tradeweb. ([email protected])0644 GMT - The Swedish krona trades steady against the euro ahead of the Riksbank's policy decision at 0730 GMT. Sweden's central bank is likely to leave its policy rate unchanged at 1.75%, Commerzbank's Antje Praefcke says in a note. Since no sustained easing of the Middle East conflict is in sight and energy prices remain elevated, the Riksbank could reiterate the possibility of future rate rises and wait to see how the situation developments, she says. Until new forecasts are published at the end of September, the Riksbank is under no pressure to act, she says. "All in all, today's interest-rate meeting should be neutral for the krona." The euro trades flat at 11.0158 krona. ([email protected])0636 GMT - The dollar trades steady but remains close to the 11-week low reached Wednesday after the U.S. Treasury announced it would buy back more of its longer-dated securities. The increased issuance of short-end Treasurys to finance the buybacks links the government's financing costs more closely to the Federal Reserve's monetary policy, Danske Bank's Filip Andersson says in an note. Perhaps it was renewed concerns over the Fed's independence that weakened the dollar in response to the Treasury's announcement, he says. Elsewhere, the Fed's July meeting minutes Wednesday contained few surprises as the committee remained divided over its perception of inflation risks, he says. The DXY dollar index trades flat, having reached as low as 98.767 Wednesday. ([email protected])0604 GMT - Natixis shifted from bearish to more neutral on the long end of the U.S. Treasury curve even before the Treasury's announcement on Wednesday to increase long-end debt buyback volumes, U.S. rates strategist John Briggs says in a note. That said, while the "mechanical increase" in purchases from a supply-demand perspective is helpful, it is not enough to outweigh the longer-term structural headwinds, he says. "Outside of the long end, we continue to recommend longs in the belly [intermediate maturities], reinforced of late by favorable data and the view from Natixis Economics for a Fed that will remain on extended hold," he says. Natixis recommends longs, but also hedged with a long in five-year inflation, Briggs says. ([email protected])0550 GMT - The DXY Index stabilised at its recent low of around 98.8 points in Asia driven by the U.S. Treasury's surprise announcement of increasing buybacks of long‑dated Treasurys to cap the rise in borrowing costs, says Carol Kong FX strategist at CBA. The 30-year Treasury yield stands at around 5.18%, about 10 basis points below where it was prior to the announcement, she adds. Still, the Treasury's action is unlikely to reverse the structural forces pushing long-term bond yields higher, just as its involvement in Japan's FX intervention is unlikely to overcome the yen's weak underlying fundamentals, Kong says. ([email protected]; X @JamesGlynnWSJ)0549 GMT - U.S. Treasury yields edge lower in Asian trade, extending Wednesday's falls seen in long-end yields after the Treasury announced an increase of long-end securities buyback volumes. "Whatever the reason, clearly the weakness brought about a response from the U.S. Treasury," Natixis U.S. rates strategist John Briggs says in a note. Natixis reckons that the move was more against the level of yields rather than concerns over the shape of the curve. The fact that the announcement was "very unexpected" sends a strong signal, Briggs says. The 10-year Treasury yield falls 0.8 basis point to 4.644%, while the 30-year yield is down 0.6 basis point at 5.188%, according to Tradeweb. ([email protected])0539 GMT - ​The U.S. Treasury's unexpected buyback announcement on Wednesday is a sign of increasing administration unease regarding the ongoing rise in long-end U.S. Treasury yields, says Deutsche Bank's George Saravelos in a note. The Treasury said it will buy back more of its longer-term bonds, raising the current maximum size of $2 billion per operation to at least $4 billion per operation. Also, the new buyback will target longer-dated nominal coupon securities with maturities of 10 years and longer. Saravelos says the buyback operation is effectively very similar to the Federal Reserve's 'Operation Twist', a Federal Reserve monetary policy that involved the simultaneous sale of short-term Treasury securities and the purchase of long-term ones. ([email protected])0538 GMT - Long-end Treasury yields have been driven higher with persistently stronger growth and elevated inflation hinting that interest rates "are simply not restrictive enough for the economy," TD Securities' Gennadiy Goldberg and Molly Brooks says in a note. Yields are also supported by supply-side considerations "as investors' conviction remains low--heavy hyperscaler and IG supply, fiscal concerns, and significant supply of competing long-end sovereign debt," the strategists say. Demand-side worries have also been key amid concerns over tepid global investor demand and moderating purchases of Treasurys by hedge funds for the basis trade, they say. ([email protected])