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Treasury buyback signal shifts expectations for long-term yields

After the Treasury buyback announcement and comments attributed to Bessent, breakeven inflation rates rose while nominal yields pulled back, a mix that can keep real yields lower.

Reported · Written up by our desk · Central Banks

Forexlive said traders are focusing too narrowly on the mechanical size of a Treasury buyback, arguing markets instead reprice based on changes to expectations for what will happen next to long-term Treasury yields and financial conditions.

The outlet pointed to the easing in financial conditions and to Bessent's pledge to do more as the key drivers. It said those comments were read as a willingness to lean against rising long-term yields, at a time when the bond market had been tightening financial conditions by pushing up borrowing costs across the economy.

Forexlive added that the backdrop includes elevated oil prices and that an implied “Bessent put” could keep long-term yields more contained, which in turn can translate into passive easing in financial conditions, higher inflation expectations, and lower real yields.

It said that following the buyback and Bessent’s comments, US breakeven inflation rates moved higher while nominal Treasury yields declined or reverted to near pre announcement levels, and it linked the setup to strength in gold and other precious metals, where real yields are a key driver. The focus, it added, will shift to the Federal Reserve.

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