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The 30-year United States (US) Treasury yield closed at 5.31% on 17 August and touched 5.34% the following day, its highest reading since 2007, while the 10-year yield reached 4.74% against 4.2% at the start of the year. Two days later the US Treasury confirmed that total federal debt had crossed $40 trillion for the first time, and these yields are making debt servicing costs expensive, they currently sit at $1 trillion per annum.
Treasury yield pressure points
None of the pressures on Treasury yields are a mystery. Beginning with a Congressional Budget Office projection that lifted the US budget deficit for the year to $2.1 trillion – with a July shortfall of $432 billion – and noted that the US borrowed more in the first 10 months of the 2026 financial year than the whole of the 2025 financial year. US inflation has run above target for five consecutive years with core Personal Consumption Expenditure (PCE) stuck at 3.3%, removing whatever disinflation argument once existed for owning long-duration Treasuries, and US Federal Reserve (Fed) Chair, Kevin Warsh, has stopped giving the market forward guidance since taking the position and widened the range of outcomes the market must price in for itself. The buyer base has also thinned alongside this, with foreign investors, who hold roughly 24% of US Treasuries, now having the hyperscalers, which are funding data centres, also competing for their capital.
Treasury’s response
To try and contain rising yields, the US Treasury announced, on 19 August, that it would at least double its buybacks of off-the-run 10-year to 30-year paper, raising each operation from $2 billion to a minimum of $4 billion across a window running from 9 September to 4 November. US Treasury Secretary, Scott Bessent, described the exercise as a Treasury Twist – after the 1961 Operation Twist that bought long bonds and sold bills – and the 30-year Treasury yield duly fell nine basis points to 5.19% before returning to 5.26% by the following session, where it has broadly remained. The reason that relief only lasted a single day results from the difference between an institution that can create money and one that cannot. When the Fed purchases bonds with reserves it issues itself, every dollar of long bond the Treasury repurchases has to be funded either by selling shorter-dated bonds or by drawing down cash, which alters the maturity profile of the debt but leaves its quantity unchanged. Nothing in the programme reduces the $2.1 trillion still to be raised this year, and in reality, the $4 billion operation is immaterial against a debt number of $40 trillion – to give you an idea of the scale of US debt, 1 million seconds is 11.5 days, 1 billion seconds is 31.7 years and 1 trillion seconds is 31,688 years.
The alternative route floated by senior officials this week is the Treasury General Account, which holds close to $950 billion against the $550 billion to $600 billion the previous administration maintained, and drawing it down would give the operation genuine size for a period. That balance would then have to be rebuilt ahead of a debt-ceiling constraint that officials themselves place, which makes cash deployed now a matter of deferring issuance rather than avoiding it. A second cost sits behind the first, in that Treasury debt management has been regular and predictable for decades and that predictability was reflected in the yield, so an off-schedule change announced two weeks after the quarterly calendar was published removes part of that value. Any attempt to suppress 30-year yields by administrative decision invites the market to price it as manipulation, which lifts term premium rather than reducing it.
The Dollar Dives
The currency market has given the clearest reading of how the US Treasury’s intervention has been received, because a rising US yield would ordinarily attract capital and lift the dollar. However, in this instance, that relationship inverted over the course of the month. The US Dollar Index (DXY) fell from roughly 101.40 in late July to 98.55 on 22 August, its weakest level since mid-May, across the same weeks in which the 30-year reached a 19-year high. More telling still, yields and the dollar fell together on the buyback announcement, and when yields subsequently rebounded the dollar failed to follow, with weakness broadening across the G10 currencies rather than narrowing in the way a technical reaction to a single announcement normally would. That breadth is what separates a fiscal risk-premium event (fears of a sovereign default or unsustainable debt) from a rate-differential one (changes in the gap between interest rates of two countries), since investors were asking for more yield and less currency exposure at the same time. Gold reached a three-month high near $4,650/ounce in the same window against record central bank buying, and although the DXY recovered on Wednesday after firm US growth data, that move belongs to the rates story rather than the fiscal one.
Treasury vs the FED
Underneath the week’s headlines the two arms of policy have begun working against each other. Warsh has signalled Quantitative Tightening (reducing money supply in the system) alongside a shortening of the Fed’s System Open Market Account duration (decreasing the average maturity of bonds), both of which push long-dated paper onto private balance sheets, while Bessent is shortening the government’s funding profile (shifting the borrowing strategy to rely more heavily on short-term debt) to much the same effect.
As the Treasury eases financial conditions it makes a future hike more, rather than less, likely, with futures already assigning roughly one-in-three odds to tightening next month and shortening the term of debt for refinancing risk at precisely the point on the curve over which Washington has least control, all while net interest already runs near $1 trillion a year.
Warsh delivers his first Jackson Hole keynote later today, and whatever tone he strikes, the constraint he is speaking to remains a fiscal one that no amount of monetary communication will reduce.
Market moves
Bonds
The 10-year Treasury yield firmed to around 4.68%, rising for a second straight session, on Thursday, as stronger-than-expected US data – capped by the 3.7% core PCE print – reinforced the case that the Fed, with the funds rate at 3.75%, is in no hurry to ease monetary policy and could yet raise rates. Adding to the backdrop, an earlier Treasury effort to cap long-end yields through heavier bond purchases has underwhelmed, leaving the curve to reprice on fundamentals and simultaneously weighing on the dollar. US rates remain the hawkish outlier among major markets; carry favours the front end (investors can earn more by holding short-term bonds) as long-term bonds remain exposed to a hawkish Fed and next week’s US payrolls data.
German bund yields, the euro-zone benchmark, eased to roughly 3.24%, near their lowest level since 14 August, as falling oil prices reduced inflation expectations and traders look to a near-fully-priced September European Central Bank (ECB) hike aimed at containing the economic fallout from the Iran war. Money markets have priced in less than 40 basis points of further tightening through year-end.
The United Kingdom’s (UK’s) gilt yields hovered around 5.02%, their lowest level since 14 August, as the same oil-driven relief rippled through. The Bank of England (BoE) picture remains hawkish – July Consumer Price Index (CPI) accelerated to 2.9%, its firmest level since March, and markets have priced in at least 25 basis points of further tightening by year-end – so the rally looks tactical rather than a trend change.
Equities
Wall Street closed firmly higher on Thursday, led by technology. The NASDAQ 100 rose 1.43% to 29,641.56, the S&P 500 added 0.72% to 7,730.99, and the Dow gained 0.2% to 53,569.44. Nvidia jumped 8.7% after indicating a roughly 70% revenue jump next fiscal year, dragging tech giants, Broadcom and Intel, and software names such as Salesforce, CrowdStrike and Palantir sharply higher. While Tech stocks led the market, elevated long-term Treasury yields and US budget deficit worries restrained the broader market.
Europe was mixed, Germany’s DAX firmed 0.31% to 26,367, helped by lighter bank weighting and steadier industrials, but the bank-heavy Euro Stoxx 50 fell 0.79% to 6,424 as banks led a retreat on fears of tighter financial conditions ahead of the ECB’s September move – BNP Paribas dropped 4.8% and UniCredit 3.2%, with Santander, ING and BBVA all lower. AI-adjacent names, ASML and Siemens Energy, slipped, so Nvidia’s halo only partly crossed the Atlantic. The European equity benchmark still holds a roughly 19% year-on-year gain, leaving valuations sensitive to the ECB rate path.
The UK’s FTSE 100 dropped 0.95% to 10,775, pressured by its heavy commodity weighting – energy giants, Shell and BP, fell on oil’s slide, while miner, Rio Tinto, retreated on softer copper. Sitting just below July’s record 10,991, the FTSE 100 illustrates the double-edged nature of a commodity-led benchmark – the same oil weakness soothing gilt yields is a drag on London’s energy majors. Global tech optimism offered only a partial offset.
Commodities
Gold is trading around $4,583/ounce, easing about 0.4% over 24 hours but is up roughly 1.3% on the week and more than 12% over the past month, keeping it near the upper end of its recent range, though still below the late-January record of near $5,597/ounce. The soft dollar, sticky US inflation prints and steady central-bank buying remain its core supports.
Brent firmed back toward $88.40/barrel overnight after a multi-session slide, with West Texas Intermediate in the low-to-mid $80s/barrel, as traders weighed hopes that the Strait of Hormuz could reopen. However, Distillate inventories sit near multi-decade seasonal lows, keeping refined-product prices firm even as headline crude has softened from its war-premium peak – a nuance that complicates the clean disinflation narrative markets have been leaning on. The near-term direction hinges on whether Hormuz-reopening optimism is confirmed or fades.
Currencies
The DXY languishes near 99.2, essentially flat but is down more than 2% over the month and sitting near multi-week lows. Twin pressures – the underwhelming Treasury effort to suppress long-term bond yields and a broad rotation into the euro and sterling – have outweighed the greenback’s rate advantage. A hawkish Warsh today is the clearest near-term catalyst for a bounce.
The euro is holding around $1.1648/€, just below its highest since mid-May and is up about 2.3% on the month, buoyed by a near-priced September ECB hike and dollar softness. The pair is consolidating recent gains; a decisive break higher likely needs either a dovish Fed surprise or firmer euro-zone data, while the Iran-driven energy backdrop remains a two-way risk for the single currency.
Sterling is trading near $1.3590/£, close to its strongest since mid-February and up roughly 2.2% on the month. Hot UK inflation and BoE tightening expectations, layered on dollar weakness, have driven the move. With the BoE among the more hawkish major central banks, the pound is being supported by higher UK interest rates, and the pound, at a six-month high, is sensitive to any dovish repricing by the BoE.
*Please note that all information is at the time of writing.
Key indicators:
GBP/USD: 1.3592
GBP/EUR: 1.1662
GBP/ZAR: 21.72
BRENT CRUDE: $88.25
GOLD: $4,608.27
Sources: Bloomberg, DBS analysis, Investing.com, Reuters, Trading Economics, Trading View and UBS.
Written by Citadel Global Managing Director, Bianca Botes.
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