Bonds recover after US Treasury comes to the rescue

Global bond prices rose sharply on Thursday after the U.S. Treasury intervened to curb a sharp decline in its debt market, easing investor concerns and causing the dollar to weaken while equities climbed. The U.S. Treasury announced it would double buyback sizes for long-duration debt, aiming to stop the rapid rise in yields that had sent the 30-year Treasury yield to its highest level since 2007 earlier in the week.

The 30-year yield fell slightly to 5.1869%, while the 10-year yield dropped to 4.6427%. Japanese government bond yields also eased, with the 40-year JGB falling to 4.055% and the 30-year JGB settling at 3.995%. Germany's bund futures and French OAT futures ticked higher, indicating lower yields. Investor unease over increasing government debt led to a sharp sell-off in bonds from the U.S. to Germany and Japan, with heavy AI-related borrowing by technology firms and high oil prices adding to the pressure.

While the U.S. Treasury's move seemed to provide a temporary floor for bond prices, some analysts warned it might be temporary. The Treasury's intervention could actually encourage more selling from institutional investors, according to one expert. In the end, the Treasury itself is the one that needs to raise debt from the bond market, and a buyback now is akin to a company doing a share buyback followed by more share issuance, which is unlikely to be well-received by the market.

The improvement in market sentiment lifted stocks on Thursday, with MSCI's Asia-Pacific index excluding Japan up 2% and Japan's Nikkei gaining 1.4%. The dollar slipped near a 2-1/2-month low against a basket of currencies at 98.87, and the euro held near its highest level since May 29 at $1.1672.