Trump Says No Need to Worry About Bond Market Volatility
Trump stated that the American public should not be concerned about fluctuations in the bond market; this statement was made following the Treasury's expansion of long-term Treasury bond repurchase operations and the decline in long-term yields from their highs.
Previously, the yield on 30-year U.S. Treasuries had risen to 5.33%, the highest since 2007; the 10-year yield had exceeded 4.70%, but subsequently fell to about 4.65% after the Treasury announced the expansion of repurchases. A decline in bond yields indicates an increase in prices.
The Treasury has raised the liquidity support repurchase limit for nominal Treasury bonds with maturities of 10 to 30 years from $2 billion to at least $4 billion per transaction, with the repurchase window open from September 9 to November 4. This operation aims to increase government demand for existing long-term bonds, temporarily alleviating supply pressure in the long bond market.
Factors putting pressure on long bonds include the U.S. federal debt nearing $40 trillion, ongoing fiscal deficits, rising energy prices heightening inflation expectations, geopolitical risks from the Iran conflict, and investors demanding higher compensation for long-term bond supply and duration risks.
The Treasury's repurchase does not equate to the Federal Reserve cutting interest rates or engaging in quantitative easing. The government still needs to continuously issue new debt to finance the fiscal deficit, so repurchases primarily improve the liquidity of specific old bonds and the market's technical aspects, but cannot independently eliminate the fundamental pressures of deficits, inflation, or rising long-term financing costs.
In market mechanics, the Treasury becomes an additional buyer of older long-term bonds, allowing dealers, funds, and other bondholders to sell less liquid bonds to the Treasury; bond prices receive support, yields decline, and long-duration Treasury ETFs, interest rate futures longs, and interest-sensitive assets benefit in the short term. If inflation expectations, fiscal supply, or overseas demand deteriorate, private capital will still demand higher duration premiums, putting continued pressure on mortgage rates, corporate bonds, and stock valuations.
Source: Public Information
ABAB AI Insight
The alarms in the U.S. long bond market are not just a concern for bond traders. When the 10-year yield approached 5% in 2023, stock market valuations, housing mortgages, and corporate financing were all under pressure; the current 30-year yield rising to 5.33%, again reaching the highest level since 2007, indicates that investors are demanding extra returns for longer inflation risks, fiscal supply, and debt duration.
The capital pathway shows a transmission of "fiscal deficit—Treasury bond supply—duration premium—overall market discount rate." The more the Treasury relies on long-term market financing, the more pensions, insurance companies, banks, money market funds, and overseas institutions need to absorb new bonds; if there are insufficient marginal buyers, rising yields will spread to 30-year mortgages, investment-grade corporate bonds, private credit, and growth stock valuations. Repurchases can free up dealers' balance sheets but cannot reduce the government's net demand for new funds.
This has limited similarities to the 1961 "Operation Twist": the policy aims to lower long-term rates by changing the bond maturity structure without primarily relying on expanding the money supply. The difference is that the current operation is executed by the Treasury under the guise of liquidity support and is much smaller in scale than the Federal Reserve's balance sheet tools; market skepticism about its effectiveness stems from the debt nearing $40 trillion, ongoing fiscal deficits, and persistent long-term inflation risks.
At its core is the transfer of pricing power. When the Treasury is both the largest bond issuer and begins to become a buyer at specific maturities, short-term prices are no longer entirely determined by private capital; however, long-term pricing power remains in the hands of global savers willing to hold U.S. debt. The government can smooth liquidity shocks but cannot force the market to unconditionally accept low yields unless inflation, deficits, and financing structures improve simultaneously.
ABAB News · Law of Cognition
The government can buy back bonds, but cannot buy back market trust.
Yields can be suppressed, but duration risks cannot be eliminated.
Deficits determine supply, confidence determines price.