Even after the Treasury signalled bigger buybacks, long-dated yields moved higher again; Fed minutes and the equity sell-off showed markets still pricing inflation and debt risk at a harsher level.
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The long end turned expensive again
The first reaction faded quickly after the U.S. Treasury said earlier in the week that it would buy back more long-dated debt. BBC reported that the 30-year yield had climbed back to 5.27 per cent two days later. Associated Press said the 10-year yield had also returned to 4.69 per cent, showing that the programme did not create lasting relief. The larger buyback therefore became only a short pause against a market still worried about the structural scale of debt.[1], [2]
The Fed's threshold did not move lower
Minutes from the Fed's July 28-29 meeting showed that many officials would still see higher rates as necessary if inflation does not cool. The policy rate was left near 3.6 per cent, but AP noted that even with July core CPI easing to 2.5 per cent, the Fed's preferred core PCE gauge is still expected at 3.3 per cent. That gap keeps bond investors leaning toward a longer period of tight conditions rather than a quick easing cycle.[3]
Equities also showed the relief was gone
The same repricing appeared in equities. AP's market close said the S&P 500 fell 0.9 per cent, the Dow 1.3 per cent and the Nasdaq 1 per cent as higher Brent prices and higher Treasury yields pushed stocks lower. The Russell 2000 also dropped 1.3 per cent. Once the brief bond-market relief vanished, investors were again pricing a market where rates and energy costs squeeze discount rates and profit expectations at the same time.[4]
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