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.