Wall Street collectively douses cold water as the U.S. Treasurys expansion of bond buybacks fails to suppress long-term yields; Goldman Sachs says it cannot address the root causes of the sell-off.

Several large financial institutions on Wall Street believe that the U.S. Treasury's recent expansion of its long-term bond repurchase program can improve market liquidity and alleviate selling pressure on long-end U.S. Treasuries in the short term, but it is unlikely to fundamentally reverse the upward trend in long-term yields. Firms like Goldman Sachs, Wells Fargo, Deutsche Bank, and France's Industrial Bank point out that macroeconomic factors such as fiscal deficits, inflationary pressures, AI capital expenditure, and the outlook for Federal Reserve policies are the main reasons for the sustained rise in long-term U.S. Treasury yields recently. After the U.S. Treasury announced the expansion of its long-term bond repurchase operations last Wednesday, the yields on 10-year and 30-year Treasuries temporarily fell. However, this effect did not persist, and long-term yields rose again in the latter half of last week. U.S. Secretary of the Treasury Janet Yellen subsequently stated that the Treasury has a "large toolbox" to take further actions to stabilize the long-term Treasury market. Reports suggest that the Treasury may even consider using its cash reserves in the Treasury General Account (TGA) to fund some of the bond repurchases. However, many Wall Street institutions believe that as long as fundamental issues such as the U.S. fiscal situation and inflation remain unchanged, simply expanding the repurchase scale will be insufficient to sustain lower long-term rates. Goldman Sachs: Even with expanded repurchases, resetting long-term rates is difficult Goldman Sachs strategists George Cole, William Marshall, and others pointed out in a report released on August 21 that the expansion of long-term Treasury repurchases by the U.S. Treasury did not address the main causes behind the recent volatility in long-term yields. Goldman Sachs believes that factors driving the sell-off in long-term Treasuries include the resilience of the U.S. economy, a market reassessment of the Feds policy path, ongoing fiscal pressures, energy price risks, and demand for funds generated by expectations of AI capital expenditure and economic growth. Therefore, even if the Treasury further expands the repurchase program, it is unlikely to fundamentally change long-term interest rate levels. Goldman stated, "We believe that even with an expanded scale, the repurchase itself is unlikely to significantly reset rate levels." The firm mentioned that the real factors capable of alleviating pressure on long-term yields remain the same as before, including a further cooling of inflation data, a decline in economic growth expectations, and a reduction in monetary policy uncertainty. Goldman also anticipates that after the Treasury expands its long-term bond repurchase program, it may raise the necessary funds through increased issuance of short-term Treasury bills, so the direct impact of the repurchase plan on the entire yield curve will still be limited. Wells Fargo: New catalysts are needed for long-term yields to genuinely decline Wells Fargo similarly believes that while the expansion of the repurchase program has reduced the net supply of long-term Treasuries in the market and sent a strong signal that the government is concerned about market liquidity, it is not enough to drive sustained declines in long-term yields. The Wells Fargo strategy team, led by Erik Nelson, stated that the market needs new catalytic factors to genuinely push down long-end yields at this point. These factors could include further slowing of economic growth and inflation, reduced uncertainty around the Fed's balance sheet and interest rate policies, fiscal rectification by the U.S. government, or a decrease in the scale of investment-grade corporate debt issuance. Wells Fargo also reminded that the market will soon pay close attention to Federal Reserve Chairman Michael Barr's remarks at the Jackson Hole Global Central Bank Symposium. If Barr emits hawkish signals, reiterating the Fed's commitment to bringing inflation back to the 2% target and keeping the possibility of further rate hikes, yields on short-term Treasuries may face upward pressure again. Deutsche Bank, Socit Gnrale, and Canadian Imperial Bank anticipate a further steepening of the yield curve Several institutions, including Deutsche Bank, Socit Gnrale, and Canadian Imperial Bank, expect that the U.S. Treasury yield curve could further steepen, meaning that long-term yields will continue to rise relative to short-term yields. This trend is exactly the opposite of what Janet Yellen hopes to achieve through policy intervention to lower long-term financing costs. Deutsche Bank believes that the Treasury's expansion of repurchases indicates that the U.S. government is adopting a more proactive debt management strategy and is willing to use policy tools and communication methods more flexibly to control long-end yields. However, the bank still expects that after the temporary rebound caused by the Treasury's intervention ends, long-term yields may continue to rise, leading to a further steepening of the yield curve. Socit Gnrale also notes that the Treasurys repurchase plan is "unlikely to change the broader forces driving yields higher." Unless there is a substantial change in the macroeconomic environment, the bank predicts that there remains potential for further increases in long-term yields. However, a more extensive repurchase program could help improve the liquidity and functioning of the U.S. Treasury market and signifies that the Treasury may take additional measures to relieve long-term bond supply pressures in the future. Canadian Imperial Bank believes that the recent rise in long-term U.S. Treasury yields is fundamentally supported, not solely a result of market liquidity issues or speculative trading. As long as the volume of U.S. Treasury issuances remains high, and nominal economic growth stays strong, long-term yields may continue to face pressure. Citi maintains a relatively optimistic view on the 20-year Treasuries In contrast to the cautious stance of most institutions, Citi holds a relatively positive view on certain long-term Treasuries. Citi believes that the expansion of the repurchase program effectively adds a degree of policy support to the long-term Treasury market, combined with more attractive current valuations, potential increased demand from pension funds, and a possible weakening of future economic data, the risk-return profile of 20-year Treasuries is currently improving. Citi also contends that the market's claim that long-end Treasuries have "lost their anchoring" may be overstated. Should the Fed's stance shift dovishly in the future, real funds may begin to flow back into the Treasury market after Labor Day. Additionally, as the performance of the 20-year Treasuries is currently lagging behind that of the 10-year and 30-year Treasuries, Citi believes that if the Treasury adjusts its issuance structure in the future, 20-year bonds could become one of the biggest beneficiaries. Bank of Montreal: The Treasuries sell-off may not be over Bank of Montreal remains cautious about the short-term Treasuries outlook. The bank believes that although the upcoming July core PCE inflation data may continue to show relatively moderate price pressures, the overall financial environment in the U.S. is still at a relatively loose level compared to the past few decades. Unless risk assets face a more sustained decline or corporate credit spreads widen significantly, drawing safe-haven funds into Treasuries, the bond market sell-off may still have room to extend further. Bank of Montreal also noted that the recent performance of the Treasury market indicates that its traditional safe-haven status may have weakened somewhat. Wall Street consensus: Repurchase can improve liquidity but cannot solve fundamental problems In summary, the views of several Wall Street institutions indicate that the U.S. Treasury's expansion of the long-term bond repurchase program is not entirely without effect. Repurchases can reduce the circulation of some long-term bonds in the market, improve trading liquidity, and signal to investors that the government is paying attention to long-end market pressures. Such measures can also help stabilize sentiment during extreme sell-off conditions. However, the issue is that the current rise in long-term U.S. Treasury yields is not solely due to insufficient market liquidity; it is simultaneously driven by a combination of factors, including fiscal deficits, inflation, economic resilience, AI capital expenditure, corporate debt supply, and uncertainty surrounding Fed policies. Therefore, institutions such as Goldman Sachs, Wells Fargo, Deutsche Bank, and Socit Gnrale generally believe that unless there are substantial changes in the macroeconomic fundamentals, even if the Treasury further expands its long-term bond repurchase program, it will be challenging to sustain lower long-term yields. The market's focus will next turn to U.S. inflation data, Chairman Barrs speech at Jackson Hole, and whether the U.S. government will implement more substantive fiscal rectification measures. These factors may be key to determining whether the upward trend in long-term U.S. Treasury yields can truly be reversed, rather than just expanding the bond repurchase program.