Treasury's Bond Intervention Unlikely to Bring Sustainable Relief — Market Talk

1301 ET - The U.S. intervention in bond markets could backfire, as the Treasury will need to issue more short-dated debt to finance long-term buybacks, First Eagle's Idanna Appio writes. The strategy entails "more interest-rate risk for the Treasury down the road when maturing obligations must be refinanced at higher prevailing rates," she says. "This rollover risk is particularly problematic in light of today's fiscal situation with a large primary deficit and high federal debt." Appio says the announced increasing buybacks still represent a small fraction of Treasury markets, making a sustainable relief less likely. ([email protected]; @ptrevisani)1136 ET - Treasury yields remain elevated after Treasury Secretary Bessent says on CNBC that an increase in planned long-term bond buybacks is meant to boost liquidity and more intervention could be ahead. He also says global economic growth is necessary to overcome the large amount of government debt that is making investors jittery. Yields rise back from declines triggered by the increased buybacks plans yesterday and remain elevated after Bessent's remarks. The 30-year is at 5.253%, the 10-year at 4.702% and the two-year at 4.185%. ([email protected]; @ptrevisani)1131 ET - Yesterday's short squeeze event led to $2.99 billion in positions being liquidated across the entire cryptocurrency market, according to data from Coinglass. It's ranked as the eight-largest such event, surpassing a $2.92B liquidation event in April 2021 that was attributed to proposed tax hikes for U.S. capital gains. Coinglass attributes this week's liquidation spree to news of long-term Treasury buybacks from the Treasury Department, as well as the news of new proposed crypto regulations from the SEC. This week's event is still only a fraction of the all-time largest liquidations ever seen, with the top event being the liquidation of over $19 billion in positions due to a tariff hike on Chinese goods by the U.S. Bitcoin is up 3.7% to $71,654 Thursday, according to LSEG data. ([email protected])1115 ET - Uncertainty over fiscal policies is a key factor behind the recent rise in long-dated government bond yields, alongside competition from attractive alternatives of AI-related and data-center infrastructure debt, says Dean Lyulkin, CEO of Cardiff, a U.S. small-business lender. On Tuesday, 30-year U.S. Treasury yields rose to a 19-year high; 10-year German Bund yields hit their highest since 2011; while 10-year Japanese government-bond yields reached 30-year highs. With long-term yields rising in Europe and Japan as well as the U.S., "that looks like a global repricing of the cost of long-term capital," he says. Growth concerns or interest-rate outlooks have less influence on bonds currently, he says. ([email protected])1049 ET - The dollar remains the most reliable defensive currency during selloffs in equities and bonds, BNY strategist Geoff Yu says in a note. The U.S. currency is bolstered by its global reserve status and relatively high U.S. real yields adjusted for inflation, he says. During three recent episodes of simultaneous bond and equity stress, the Swiss franc, Singapore dollar and euro--key alternative safer currencies--tended to weaken or perform well only intermittently against the dollar, BNY research shows. "There is little evidence that any major non-dollar currency provides a reliable hedge," Yu says. BNY suggests maintaining dollar exposure for protection, using the Swiss franc, Singapore dollar and euro "selectively as secondary defensive positions." ([email protected])1047 ET - Tensions between Saudi Arabia and the United Arab Emirates are increasingly spilling into the economic sphere, says Jason Tuvey, deputy chief emerging markets economist at Capital Economics. Saudi Arabia's tighter oversight of financial transactions involving the U.A.E. is best viewed through the broader geopolitical tensions between the two countries, rather than solely through concerns over Emirati ties with Iran, he says. Tuvey expects the direct economic impact on Saudi Arabia and the U.A.E. to remain relatively small even if restrictions broaden, but says the consequences could be larger elsewhere in the region as the two countries compete for influence. ([email protected])1036 ET - The Bank of England could reduce the volume of long-dated gilt sales or stop the sale of the long-maturity gilts under the quantitative tightening program, Deutsche Bank's Sanjay Raja and Maui Brennan say in a note. The BOE's long-dated gilt sales have seen lower bid-to-cover ratios--a measure of investor demand--, they say. Reduced demand for long-dated gilts is likely to cause the BOE to adjust its sales strategy in the 12-month period starting in October, the economists say. ([email protected])1018 ET - Details emerging about the tentative trade pact between the U.S. and Canada means "a green light for growth" for America's northern neighbor, says Derek Holt, economist at Bank of Nova Scotia. Based on some details emerging, per reporting by WSJ and other outlets, Holt calculates the overall tariff rate on U.S.-bound Canadian exports would be 3.7%, compared to the present 5.5% level. On a global basis, the total tariff rate on all Canadian exports drops to 2.8%. The rates were much lower prior to President Trump's second term, Holt says. Still, the result "is next to nothing by way of an incremental overall tariff burden," and rates that "vastly lower" than what the US is applying against other countries. He envisages two Bank of Canada rate hikes in 4Q. ([email protected]; @paulvieira)1002 ET - The Swedish krona falls to a near four-week low against the euro as the Riksbank's policy decision Thursday didn't provide any new information, Commerzbank's Michael Pfister says. Sweden's central bank left rates unchanged at 1.75% and said a rate rise later this year remains a possibly, but this "essentially reiterated what they said last time," he says. "Some market participants were hoping for two rate hikes this year, this is probably now off the table." Moreover, higher oil prices and risk aversion are probably weighing on the krona amid ongoing U.S.-Iran tensions, he says. The euro rises 0.6% to a high of 11.0877 krona, LSEG data show. ([email protected])0956 ET - The Swiss franc and Japanese yen could lag a broad rally against a weaker dollar as the U.S. Treasury's buyback announcement improves risk appetite, ING analyst Chris Turner says. The move suggests the Treasury is prepared to take action to support the bond market, he says. This also reduces volatility, supporting carry trades where investors borrow in low-yielding currencies like the franc and yen to purchase higher-yielding currencies. While the franc has rallied on positioning adjustments, it should "ultimately lag" even more than the yen due to the threat of further U.S.-Japanese currency interventions, he says. The dollar fell to a two-month low of 0.7947 francs and a 10-day low of 158.00 yen earlier, LSEG data show. ([email protected])0908 ET - The proportion of U.S. job displacements by AI remains fairly small, but this trend is becoming increasingly noticeable, Morgan Stanley economists say in a note. AI displacement is adding at most around 15 basis points to the U.S. unemployment rate as of June 2026, an increase from 10 basis points in December 2025, they say. "Disruption signs remain most pronounced among younger workers," they say. ([email protected])0856 ET - Canada avoided disaster with its tentative trade deal with the U.S. but the pact can't be described as a win, says David Rosenberg, head of Toronto-based market-strategy firm Rosenberg Research. Rosenberg says Canada avoided the threat of a 50% tariff on about $20 billion of its U.S.-bound exports. Per reporting by the WSJ, the U.S. is set to provide Canada sizable tariff relief on targeting steel, aluminum and autos. Bottom line, Rosenberg says, is that "Canada is now is paying tariffs it didn't pay two years ago, and giving up retaliatory measures ... in exchange for a reduction rather than a removal." He adds that, at best, some tail risks for Canadian economic growth have been partly removed. ([email protected]; @paulvieira)