U.S. Treasury Doubling Long-End Debt Buybacks Highlights Underlying Issues — Market Talk

0820 GMT - The U.S. Treasury's attempt to dampen the rise in bond yields under the guise of scaled-up liquidity operations has only drawn more attention to underlying issues, ING's Benjamin Schroeder says in a note. The growing U.S. debt load and the limited ability or willingness to rein in the U.S. deficit have received more attention, the rates strategist says. "While it has been signalled that some announcements to cut back on wasteful spending will be made in coming days, without a big rethink coming from Congress, we are only looking at trimming the edges," Schroeder says. ([email protected])0813 GMT - The dollar is at risk of falling ahead of remarks from Treasury Secretary Scott Bessent and the Federal Reserve's Jackson Hole symposium, MUFG Bank's Derek Halpenny says in a note. Bessent could provide information on fiscal consolidation plans later Monday after the Treasury announced increased buybacks of long-dated securities last week. Fed Chair Kevin Warsh is due to speak at Jackson Hole on Friday. Warsh could continue to provide little signals about future policy, Halpenny says. "That could see the long-end of the bond market suffer especially if by then there has been no credible measures announced on fiscal consolidation." The DXY dollar index last trades up 0.2% at 98.966, having reached a three-month low of 98.557 Thursday. ([email protected])0751 GMT - Indonesia's fight against underinvoicing exports could have a positive impact on the country, says Maybank Sekuritas's head of research, Jeffrosenberg Chenlim. Danantara Sumberdaya Indonesia, a newly formed arm of Indonesian sovereign-wealth fund Danantara, is primarily aimed at combating underinvoicing, and improving price transparency and transaction monitoring, Chenlim notes. Successful implementation of DSI's efforts could help increase state revenues while enhancing Indonesia's leverage in shaping global pricing for its major export commodities, Chenlim says. This could support higher export receipts and help Indonesia build a stronger foreign exchange reserve position, Chenlim adds. ([email protected])0736 GMT - The Canadian dollar falls after trade talks between the U.S. and Canada collapsed. New U.S. tariffs against Canada came into effect at the weekend following the breakdown of negotiations on Friday, while Canada said it would impose reciprocal levies. "As a smaller, more open economy, Canada has more to lose from this, but Prime Minister Mark Carney seems to have opened the door to more fiscal stimulus to support affected business," ING's Chris Turner says in a note. The U.S. dollar rises 0.5% to a five-day high of 1.3831 Canadian dollars and ING sees scope for it to reach 1.3910 before U.S. dollar sellers return. ([email protected])0709 GMT - Bitcoin rises slightly, staying below Friday's three-month high but remaining elevated. The recent rally is helped by improving liquidity expectations, lower regulatory risk premium and forced short-covering, where investors close earlier bets against an asset as it strengthens, Zaye Capital Markets analyst Naeem Aslam says in a note. "U.S. Treasury action to increase purchases of longer-dated securities helped pull yields lower and improve risk appetite, while President Trump's renewed push for clearer digital-asset legislation has strengthened expectations that institutional participation could become easier." Bitcoin's next phase depends on whether its move above $77,000 develops into sustained demand, he says. Bitcoin rises 0.1% to $77,472, having reached as high as $79,455 Friday, according to LSEG. ([email protected])0700 GMT - Eurozone government bond yields fall in opening trade as global markets start the week with relief, helped by a slight decline in oil prices. This week's focus is on the Kansas City Fed's annual Jackson Hole symposium with Federal Reserve Chairman's Kevin Warsh's speeach. "Warsh is likely to focus on credibility and emphasize that the Fed is ready to act on inflation to control the long end of the curve," Jefferies' Mohit Kumar says in a note. On Monday, Belgium will conduct a bond auction. The 10-year Bund yield falls 2.4 basis points to 2.324%, according to Tradeweb. Ireland's 10-year bond yield declines 2.2 basis points to 3.388% after Moody's Ratings upgraded Ireland to Aa2 from Aa3, with a positive outlook on Friday. ([email protected])0654 GMT - The dollar edges higher as U.S.-Iran tensions persist. Treasury Secretary Scott Bessent said in an opinion piece for the Financial Times that an "economic D-Day" was coming for Iran. Bessent is expected to provide details on sanctions at a news conference later in the day. "The dollar's reaction is likely to depend on the scope and severity of the sanctions," Commerzbank's Volkar Baur says in a note. The dollar could fall if several countries with economic ties to Iran are affected by sanctions, he says. The DXY dollar index rises 0.1% to 98.871, having reached a three-month low of 98.557 Thursday after the Treasury announced increased buybacks of long-term debt. ([email protected])0606 GMT - The fact that the U.S. Treasury is buying bonds to lower yields could prevent markets from fully pricing inflation and fiscal risk, and from reacting fully to Fed policy decisions, says Ipek Ozkardeskaya, strategist at Swissquote. As such, it could make the Fed's job of bringing inflation back toward its 2% target harder--something that Fed Chair Kevin Warsh probably wants to avoid. He won't want to look like a fool in front of the entire world, she adds. This week's Jackson Hole gathering might bring some clarity on how the Fed will fit into the administration's plans, she says. ([email protected]; @JamesGlynnWSJ)0603 GMT - Bond markets remain vulnerable as oil prices are still elevated and fiscal fears are mounting, Commerzbank's Hauke Siemssen says in a note. "Global bond markets remain vulnerable with yields across the curves testing multi-year highs," the rates strategist says. While this morning's consolidation is encouraging, a lasting turnaround seems unlikely for now as there is no easy fix to the underlying drivers, he says. The strategist expects input for the markets from U.S. PCE inflation data and guidance from the Kansas City Fed's annual Jackson Hole symposium this week, adding that the data and the symposium "should become intriguing." ([email protected])0600 GMT - RBC BlueBay Asset Management continues to advocate for inflation-linked bonds and swaps to outperform while the prospect of a peace deal in the Middle East is elusive, says fixed income head Mark Dowding in a note. Money markets price in a full 25-basis-point Federal Reserve rate hike in December, according to LSEG. "In the Middle East, hopes for a peace deal continue to diminish and it appears that we are set to remain in a grey zone for an extended period, with trade flows through the Strait of Hormuz staying at a fraction of the levels seen prior to the start of the war," Dowding says. ([email protected])0546 GMT - U.S. Treasury yields decline in Asian trade, but nonetheless remain at elevated levels as oil prices also move lower. "Last week it was all about U.S. Treasurys and [Treasury Secretary Scott] Bessent's announcement on increased long-end buyback, prompting a mid-week rally," Danske Bank's Jesper Fjarstedt says in a note. "But as markets digested this and concluded that the structural drivers remain the same, the initial move was reversed and long-dated yields closed the week broadly unchanged," the senior analyst says. The 10-year Treasury yield falls 2.2 basis points to 4.714%, while the 30-year yield, which hit a 19-year high of 5.337% last week, declines 2.7 basis points to 5.248%, according to Tradeweb. Brent falls 1.36% to $93.11 per barrel. ([email protected])0534 GMT - Federal Reserve Chairman Kevin Warsh is likely to argue for reducing the Fed's use of forward guidance, which he views as a source of past policy mistakes, Barclays rates strategists say in a note. At the Kansas City Fed's annual symposium at Jackson Hole between Aug. 27 and Aug. 29, Warsh may also provide insights on balance sheet policy, they say. They also expect Warsh to emphasize long-run drivers of the economy, particularly productivity trends and their effects on potential growth. Warsh is unlikely to provide near-term policy guidance, but markets will look for clarity on how the FOMC intends to return inflation to the 2% goal, the strategists say. Warsh is more likely than not to affirm that rate hikes are possible if inflation fails to improve. ([email protected])