The US Treasury has stepped in to calm a rout in its bond market, announcing it will double buyback sizes for long-duration debt. This move has steadied global bonds, with the 30-year Treasury yield falling to 5.1890% in early Asia trade. According to Taylor Nugent, senior economist at National Australia Bank, 'the timing of the announcement...was taken as a signal that officials are alert to pressure in long-end borrowing costs.'
The announcement has also had a positive impact on other bond markets, with yields on Japanese government bonds (JGBs) falling from multi-decade highs. Germany's bund futures and French OAT futures have also ticked higher, implying lower yields.
Market Reaction
The pickup in market sentiment has lifted stocks, with MSCI's broadest index of Asia-Pacific shares outside Japan and Japan's Nikkei rising 1.2% each. Nasdaq futures have advanced 0.5%, while S&P 500 futures have edged 0.16% higher.
Currency Impact
The retreat in yields has weighed on the dollar, which is languishing near a 2-1/2-month low against a basket of currencies. The euro is holding near its highest level since May 29, while sterling has steadied after rising 0.55% in the previous session.
According to OCBC analysts, 'if long-end yields are effectively capped, a weaker USD may be part of the trade-off to maintain the attractiveness of U.S. government debt for foreign investors.'
Outlook
While the US Treasury's announcement has provided temporary support to the bond market, investors are warning that the impact may be short-lived. Cusson Leung, chief investment officer at KGI, said 'the more the (U.S.) Treasury department wants to intervene, the more selling from institutional holders it will induce.
