Global bonds rebounded on Thursday after the U.S. Treasury stepped in to stem a rout in its debt market, soothing investor nerves and sending the dollar lower while stocks climbed.
The U.S. Treasury said it will double buyback sizes for long-duration debt, as it sought to stanch an upward march in yields that sent the 30-year Treasury yield to its highest level since 2007 earlier this week.
The 30-year yield was a touch lower at 5.1869% in Asia trading, having slid 9 basis points in the previous session, while the benchmark 10-year yield stood at 4.6427% after a 5-bp fall on Wednesday.
"Clearly, we've reached a threshold in long-term Treasury yields that's made the U.S. Treasury extremely uncomfortable," said Eric Robertsen, global head of research and chief strategist at Standard Chartered.
In Tokyo, yields on Japanese government bonds (JGBs) fell from multi-decade highs.
The yield on the 40-year JGB was down 9.5 bps at 4.055% , while that of the 30-year JGB slid 8.5 bps to 3.995%.
Germany's bund futures and French OAT futures ticked higher, implying lower yields.
Growing investor unease over mounting government debt sparked a steep bond selloff from the U.S. to Germany and Japan this week, exacerbated by heavy AI-related borrowing by technology companies and elevated oil prices.
While the U.S. Treasury's announcement appeared to put a floor under falling bond prices for now, investors said the support was likely to be temporary.
"The more the (U.S.) Treasury department wants to intervene, the more selling from institutional holders it will induce," said Cusson Leung, chief investment officer at KGI.
"At the end of the day, we know that the Treasury department is the one which needs to raise debt from the bond market. It doing a buyback now is like a company doing a share buyback first, followed by more share placement. The market is unlikely to fall for that."
STOCKS REBOUND, DOLLAR SLIPS
The pickup in market sentiment lifted stocks on Thursday, with MSCI's broadest index of Asia-Pacific shares excluding Japan (.MISX00000PUS) rising 2% and Japan's Nikkei (.N225) adding 1.4%.
Nasdaq futures advanced 0.4%, while S&P 500 futures edged 0.15% higher. EUROSTOXX 50 futures eased 0.2%.
The retreat in U.S. yields weighed on the dollar, which languished near a 2-1/2-month low against a basket of currencies at 98.87.
The euro held near its highest level since May 29 and changed hands at $1.1672, while sterling rose 0.06% to $1.3614, extending its 0.55% rise from the previous session.
"If long-end yields are effectively capped, a weaker USD may be part of the trade-off to maintain the attractiveness of U.S. government debt for foreign investors," OCBC analysts said in a note.
Minutes of the Federal Reserve's latest policy meeting released on Wednesday showed that concern about inflation deepened, with "several" policymakers appearing ready to raise interest rates and "many" saying a hike in borrowing costs would be needed if inflation does not decline to the central bank's 2% target.
"The next key event is Fed Chair (Kevin) Warsh's speech at the Kansas City Fed's Jackson Hole symposium next week," the OCBC analysts said. "In the absence of explicit forward guidance, we do not expect a notably hawkish message."
In commodities, Brent crude futures rose 0.1% to $91.69 a barrel, while U.S. crude futures edged 0.2% higher to $86.00 per barrel.
Shipping through the Strait of Hormuz slowed, data showed on Wednesday, as most shipowners avoided the key waterway because of a lack of clear signalling on its reopening from a blockade during the U.S.-Israeli war on Iran.
Spot gold was down 0.8% to $4,484.09 an ounce.
