U.S. Treasury Buybacks Could Complicate Fed's Task — Market Talk

1012 GMT - The U.S. Treasury's announcement that it would increase buybacks of long-dated debt could temporarily help keep long-dated yields lower, but it could also complicate the task of the Federal Reserve of containing inflation, says Rabobank's Elwin de Groot in a note. "Easier financial conditions from lower long yields sit awkwardly alongside above-target inflation, complicating the Fed's task, as minutes show several policymakers were prepared to raise rates in July," he says. Investors could conclude that the Treasury will adjust issuance or buybacks whenever long yields rise too quickly, creating an implicit 'Treasury put', he says. The DXY dollar index falls 0.3% to 98.636, hovering just above Thursday's three-month low of 98.557. ([email protected])0959 GMT - The euro rises to a three-month high of $1.1711 versus a broadly weaker dollar, LSEG data show. The currency is helped by eurozone purchasing managers' surveys, which point to relative resilience in the face of elevated energy prices. The flash estimate eurozone composite PMI was 52.1 in August, above the consensus forecast of 51.8 in The Wall Street Journal's poll. This could leave the European Central Bank on course to raise rates next month, with money markets pricing a 94% chance of this scenario, LSEG data show. "High natural gas prices remain a concern, but since the eurozone economy seems to be coping with these better now, euro/dollar can focus on the soft dollar story," ING's Chris Turner says in a note. ([email protected])0951 GMT - Eurozone flash PMIs continue to indicate stubborn growth despite various downside risks, ING's Bert Colijn says in a note. The composite PMI rose marginally to 52.1 in August from 52.0 in July, indicating that the business economy is growing at a steady rate. Despite oil prices above $90 per barrel again, the surveys show softening inflationary pressures, taking away some immediate concerns of core inflation quickly moving higher on the flare-up of the Middle East conflict, Colijn says. "The eurozone economy has been quite resilient so far, and momentum remains surprisingly decent." However, continued elevated oil prices and a higher repricing of interest rates in recent weeks suggest there are factors slowing growth, he says. ([email protected])0940 GMT - U.S. stocks linked to cryptocurrencies continue to rise premarket, spurred higher by a surge in bitcoin and ethereum. Investors are increasingly confident in the regulatory outlook for crypto in the U.S., even if the crypto-friendly Clarity Act doesn't pass, Bernstein analyst Gautam Chhugani writes. "The industry expects accelerated rule making for supporting native crypto tokens, tokenized equities, perpetual futures" and other crypto-related activities, Chhugani says. Bitcoin trades up 6.6% at $77,794.84, while ethereum adds 2.7% at $2,389.07. Bitcoin-hoarder Strategy jumps 9.3% premarket, on pace to rise by over 30% since market close Tuesday. Crypto exchanges also gain, with Coinbase and Hyperliquid Strategies rising 6.2% and 3.2%, respectively. Robinhood Markets adds 5.1%.([email protected])0926 GMT - The U.S. dollar falls, hovering near a three-month low, while Treasury yields turn slightly lower. The U.S. Treasury's plan announced Wednesday to double buybacks of long-dated debt caused yields and the dollar to drop. However, the impact on Treasurys was temporary while the dollar remains weak. Expectations that U.S. interest rates could be left on hold over the short term could continue to weigh on the dollar as well, Eleonex's Stefan Arsenovic says in a note. The DXY dollar falls 0.3% to 98.593, just shy of Thursday's three-month low of 98.557. The 10-year Treasury falls 1 basis point to 4.687%, according to Tradeweb. ([email protected])0900 GMT - U.K. government borrowing continues to drift off course, says Dennis Tatarkov, senior economist at KPMG U.K. Public-sector net borrowing was 1.8 billion pounds in July, up from 1.1 billion pounds a year ago. The gap between projected and actual borrowing since the start of the fiscal year in April has remained at around GBP2.3 billion, he says. "Stronger self-assessment tax receipts, typical for July, was not enough to put the public sector borrowing back on track this fiscal year." Measures to help with the cost of living pledged by the new Andy Burnham administration are likely to keep near-term borrowing elevated, Tatarkov says. Yet, the market's appetite for more debt is limited, he says. ([email protected])0752 GMT - The German 10-year Bund yield trades steady after a weaker-than-expected print of flash estimate August PMI data, having earlier traded marginally higher. The composite flash estimate PMI was 51.0, below analysts' consensus expectation of 51.5 in The Wall Street Journal's poll. However, the reading remained above 50, signalling an expansion in activity. Manufacturing was stronger, though services activity unexpectedly contracted. The 10-year Bund yield was 0.2 basis points lower at 3.245% after the release, according to Tradeweb data. The euro is little changed after the data, last up 0.1% at $1.1695. ([email protected])0728 GMT - The idea that Washington has chosen a buyback of long-term debt instead of changing its fiscal trajectory and slowing debt growth, while exerting increasing pressure on Federal Reserve policy, will likely only reinforce the de-dollarization trade that is already in place, says Ipek Ozkardeskaya, senior analyst at Swissquote. Foreign entities like central banks, finance ministries and sovereign wealth funds' aggregate holdings of U.S. Treasurys fell to some 12% from roughly 40% during and after the subprime crisis, leaving the market increasingly reliant on price-sensitive private investors, she adds. The latest news could further reinforce that loss of confidence, she says. ([email protected]; X @JamesGlynnWSJ)0727 GMT - The 10-year French government bond, or OAT, yield trims its rise after a weaker-than-expected flash estimate purchasing managers' index reading for August. The composite flash PMI came in at 48.8, below analysts' consensus expectation of 49.4 in The Wall Street Journal's poll. The 10-year OAT yield is last up 0.3 basis points on the day at 4.109% after the data, versus 4.115%, up 0.9 basis points beforehand, according to Tradeweb. The euro shows little reaction, last trading up 0.1% against a broadly weaker dollar at $1.1692. ([email protected])0719 GMT - Yields on U.K. government bonds, or gilts, rise slightly after data showed the U.K. posted an unexpected budget deficit in July. The Office for National Statistics said the government had a budget deficit of 1.8 billion pounds ($2.45 billion), an increase of 700 million pounds from July 2025. An increase in spending more than offset record revenues from income taxes. Retail sales were also weak, falling by 0.5% month-on-month in July, more than the 0.4% fall forecast by economists in a WSJ poll. U.K. purchasing managers' data for August are due at 0830 GMT. The 10-year gilt yield rises 1.4 basis points to 5.053%, increasing by slightly more than eurozone and U.S. peers. ([email protected])0707 GMT - Sterling remains weak against the euro, staying not far from Thursday's three-week low after data revealed U.K. public finances deteriorated more than expected while retail sales were weak. The U.K. government borrowed more in July than a year earlier as an increase in spending more than offset record revenues from income taxes. Retail sales fell by 0.5% on month in July, more than the 0.4% fall forecast by economists in a WSJ poll. "The second half of the year so far looks far from being smooth sailing," Ebury's Phil Monkhouse says in a note. The euro rises 0.1% to 0.8569 pounds, staying near a three-week high of 0.8585. Sterling rises 0.1% against a broadly stronger dollar to $1.1696. ([email protected])0653 GMT - Bitcoin rises around 4% to a 12-week high of $75,681, according to LSEG data. The cryptocurrency is boosted by a combination of regulatory momentum, institutional spot demand, lower-yield expectations and forced short covering, Zaye Capital Markets' Naeem Aslam says in a note. President Trump has urged lawmakers to pass a "fair version" of the Clarity Act, a proposed U.S. federal bill aimed to create a clear legal framework for crypto currencies and digital assets. "That materially changes the regulatory risk premium surrounding bitcoin because clearer rules can make banks, asset managers and corporations more comfortable allocating capital to the sector, while the possibility of additional sovereign holdings strengthens bitcoin's scarcity narrative," Aslam says. ([email protected])