The US bond market has resisted the Treasury Department’s attempt to reduce borrowing costs, as government bond yields continue to rise, even after a plan to repurchase $6 billion in US Treasury securities. Treasury Secretary Scott Bessent announced the buyback initiative on Wednesday, aiming to counteract a selloff that has been elevating interest rates. However, the operation’s scale did not manage to reassure investors, leading to an increase in the yield on 10-year Treasury bonds, reaching its highest point in three years.
The yield on 30-year Treasury bonds has surged to approximately 5.2%, marking its peak since the 2008 financial crisis. Market apprehension has been fueled by persistent inflation and the ongoing conflict in Iran, which have intensified the pressure on US government debt—historically considered one of the world’s most secure investment options. In August, Bessent revealed that the Treasury would at least double its routine debt buyback operations in an effort to stabilize the market. This strategy aims to reduce the availability of bonds for investors, potentially lowering yields. Nonetheless, yields have continued to escalate since the announcement.
US government debt crossed the $40 trillion threshold in August, having doubled over the past decade. The rise in Treasury yields could lead to increased borrowing costs for consumers, affecting mortgage rates, student loans, and auto financing. The pressure on the bond market presents an added challenge for the US Federal Reserve, as inflation remains persistently high. Although annual inflation hit a three-year peak in May, it eased to 3.4% in July, still 0.7 percentage points higher than the previous year’s level, with rising energy costs contributing to the inflationary pressure.
Additionally, the increase in oil prices has compounded concerns, with Brent crude surpassing $100 per barrel on Wednesday, amidst escalating tensions in the Middle East. This situation places the Federal Reserve in a challenging position, as it seeks to balance controlling inflation through interest rate adjustments with the political pressure from President Donald Trump, who has consistently advocated for lower rates.