Istanbul, August 22 (HNA) – It was noted that, based on the US Treasury Department’s strategy of doubling its buy-back programme from $38 billion to $56 billion to slow the rise in long-term bond yields, it had “sent a psychological message that it could step up interventions if necessary”.
In an analysis titled “Interest Rate Volatility: The Treasury’s Post-Maturity Plan”, published on the ING Bank website on 20 August, it was noted that by doubling its bond buyback programme to prevent long-term Treasury yields from rising excessively, the US Treasury Department signalled to the markets that it would not allow yields to spiral out of control, and the comment was included that “Whilst this move does not constitute monetary easing, the fact that the increased buybacks are financed through short-term bond issuance reduces the net supply of long-term bonds, thereby limiting the pressure for interest rate rises”.
The analysis stated that the US Treasury is funding this move through the issuance of short-term bonds, and whilst it is unlikely that the yield on 10-year bonds will fall significantly below 4.5 per cent, the Treasury will actively prevent any movement above 5 per cent through this strategy.
In the analysis prepared by Padhraic Garvey, a financial analyst at ING, it was emphasised that, despite the US Treasury’s move, upward pressure on long-term bond yields would persist. Garvey’s view is as follows:
“It is clear that the US Treasury is prepared to limit the upward movement in long-term bond yields. The impact of increased buybacks is based on the fact that yields on long-term bonds could double again and again if necessary, rather than simply doubling once. However, in the current situation and until then, the upward pressure on long-term bond yields will continue.”