The Treasury Department's move to double its debt buybacks was meant to steady long-dated bonds, but inflation expectations have instead climbed to a two-month high. Long-dated yields, which briefly fell on the announcement, have since rebounded above their pre-announcement levels, and traders are now watching for signals from Fed Chairman Kevin Warsh's Jackson Hole speech next week.
Breakevens jump after buyback announcement
The 10-year breakeven rate rose to 2.34% on Thursday, its highest since June 10, while the five-year breakeven hit the same level, its highest since June 16. The move followed Wednesday's Treasury announcement that it would at least double the size of its typical $2 billion debt buyback, an operation meant to support the market for longer-dated debt.
Treasury Secretary Scott Bessent said the move wasn't an attempt to tamp down yields, but it came after the 10- and 30-year Treasurys had climbed to levels not seen since before the 2008 financial crisis. According to CNBC: "The background here is very unforgiving at the moment," said Van Hesser, chief strategist at KBRA.
Yields rebound instead of settling
Long-dated yields plunged the day of the buyback announcement but rebounded Thursday and rose again Friday. The 10-year yield climbed more than 3 basis points to 4.732%, up from as little as 4.63% a week earlier, while the 30-year yield rose more than 3 basis points to 5.273%, up from 5.21% a week ago. The shorter-dated 2-year note also climbed, rising more than 4 basis points to 4.234% from about 4.10% a week earlier.
The dollar weakened too, losing nearly 0.9% this week, a move Macquarie's Thierry Wizman tied partly to expectations of looser Fed policy. Traders are also watching the personal consumption expenditures price index, due next Wednesday.
Retail investors face duration risk
The swings are also reaching retail portfolios. The 30-year Treasury yield closed July at roughly 5.28%, a level unseen in nearly 30 years, and CFR senior fellow Rebecca Patterson has warned that the traditional stock-bond diversification trade is breaking down as both assets have moved in the same direction during parts of 2026. Long-duration bond funds face the steepest potential losses if yields keep climbing, while the ICE BofA MOVE Index, which tracks Treasury volatility, has stood near 71 to 73.
Fed Chairman Kevin Warsh is scheduled to deliver his keynote at the Jackson Hole symposium on Aug. 28, and Wizman noted that a persistently dovish signal from Warsh could push breakevens higher still, undoing the stability in long-term yields that Bessent is trying to achieve.
Sources: CNBC, CNBC, Crypto Briefing
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