The 10-year Treasury yield touched a 19-month high on Monday, overriding a Treasury buyback program meant to hold long-term borrowing costs down. The S&P 500 fell as rising yields pressured stocks, extending losses from Friday's hawkish Fed commentary.
The 10-year Treasury yield hit 4.76% on Monday, the highest level since January 2025. The move challenges Treasury Secretary Scott Bessent's effort to keep long-term government bond yields under control, and it is weighing on stocks.
Buyback plan fails to hold yields down
Treasury announced on Aug. 19 that it would at least double the size of its buybacks of government bonds with durations of 10 years up to 30 years. The announcement briefly eased yields, with the 10-year slipping five basis points to 4.65%. That relief proved short-lived. The 30-year Treasury yield sits at 5.27%, still below the 5.29% level it touched ahead of the buyback news, which was the highest 30-year yield since 2007.
The expanded buybacks are set to begin on Sept. 9, with a minimum of $4 billion in buybacks per auction, up from a maximum of $2 billion. Treasury has given mixed signals on how the program will work: the expectation is that long-term debt would be retired as more short-term bills are issued, but CNBC reported that Treasury could instead use its general account to buy and hold long-term bonds.
AI debt issuance and the deficit add pressure
A surge in corporate debt issuance by AI hyperscalers including Google, Amazon and Microsoft seems to be a big contributor to the upward pressure on yields. Those companies are offering higher rates than Treasury, pulling buying power away from government debt and pushing yields higher. Persistent inflation is another factor, as is the resumption of U.S.-Iran strikes over the weekend.
The federal budget deficit will come in around 6% of GDP this year, a level the source calls extraordinarily high for a period of solid economic growth. Therefore, the rising burden of interest costs alongside Social Security and Medicare spending for baby boomers suggests big deficits may be here to stay.
Stocks retreat as yields climb
The S&P 500 fell 0.4% Monday morning, extending Friday's 0.25% loss that came as Federal Reserve Chairman Kevin Warsh delivered a hawkish outlook for monetary policy. The index finished Friday just 1.1% below its Aug. 13 all-time closing high and up 12.65% on the year.
Source: Investor's Business Daily
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