United States: Long-end yield risks contained – ING

ING’s Padhraic Garvey analyses how the US Treasury’s decision to double buybacks in 10-30 year maturities affects long-end US Treasuries. He stresses that while the programme is sizeable and could be expanded again, it mainly mutes, rather than reverses, upward pressure on long yields. Garvey still sees scope for higher 10-year yields, but expects resistance to levels above 5%.

Treasury buybacks reshape long-end dynamics

"The Treasury’s decision to increase buybacks in longer durations smacks of discomfort with the sell-off seen in longer tenor Treasury securities of late. It’s been impactful, with the 10-30-year yields down 5-10bp to begin with. The official genesis of the buyback programme, back in May 2024, was to bolster liquidity, and indeed, that was the rationale employed to explain away the announced doubling of buyback sizes in the 10yr to 30yr maturities."

"It's clear that the US Treasury is ready to place a limit to the upside for longer-dated yields. The impact of the increased buybacks is not so much on the doubling of them in long dates, but more so on the implied reality that they could be doubled again, and again if needed. But given what we have now, and until then, upward pressure on long yields will remain."

"Given that, we’d continue to identify upward pressure on long-end yields as a dominant factor that the market will need to deal with. But muted it absolutely is."

"We’re still of the opinion that the 10yr yield has a risk factor move in it to the 4.75% to 5% zone. And for now, it’s unlikely to get much below 4.5%, but one thing has become more clear from this is any move above 5% (or even the material threat thereof), would likely be actively resisted/prevented by the US Treasury Department."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)