Treasury bond buyback backfires as yields reverse within a day

The Treasury's Wednesday announcement of at least a doubling of liquidity support buyback operations in long-dated bonds was supposed to calm markets. Instead, the move left yields lower for roughly a day before 10-year and 30-year rates erased the decline and pushed higher again.

The intervention came after long bond yields hit new cycle highs earlier in the week. Higher oil prices, debt concerns, and fading credibility in the Fed had weakened demand at the long end. The Treasury's action marks another direct market intervention, following its support for the yen in the FX market. The result was a dollar drop, gains in precious metals and bitcoin, and a quick reversal in the bond move.

Treasury Secretary Scott Bessent said Thursday the government would soon announce an "increased focus on fiscal consolidation." The market's read was less reassuring. The pattern of intervention followed by market pushback risks eroding US credibility further, traders said.

The 10-year yield closed the week near 4.70%. The path to 5% over the next 12 months remains intact, though the timing depends on how the fiscal consolidation message lands and whether oil keeps climbing.

Oil and European gas prices rose through the week. Brent crude moved from $88 to $94 after Trump declared "economic war" against Iran, threatening consequences for any country doing business with Tehran. TTF European gas hit a new cycle high of EUR66/mwh. The ebbs and flows in oil markets will continue in the coming months, analysts said.

European Flash PMI data for August showed further improvement. Manufacturing PMI rose from 51.9 to 52.8, the highest since 2022. Service PMI held at 52.7. The global AI investment boom is spilling into European manufacturing, particularly through sub-suppliers to the chip industry, cooling systems, and materials.

Taiwan export orders for July were up 61.9% from a year earlier, though the six-month growth rate is easing. Taiwan's order data is a key indicator for the global AI investment cycle, which is driving the broader manufacturing cycle. Taiwan Semiconductor Manufacturing Co. is the leading producer of advanced AI chips.

Chinese data for July showed a two-speed economy: retail sales grew just 0.6% year-on-year, while exports surged nearly 25%. Housing weakness persists. The Politburo hinted at more forceful stimulus in the second half at its late-July meeting.

Next week brings the German ifo business confidence index, US core PCE and personal spending, and US durable goods orders. The durable goods data is a key investment indicator and offers a window into the AI investment boom.