The Ministry of Finance's buying intervention is merely a drop in the bucket! In September, a wave of 215 billion yuan in corporate bond issuances is set to sweep in, and the favorable conditions for US treasury repurchases may be entirely offset.

Notably, since 2006, the yield on the longest-term U.S. Treasury bonds has never maintained such high levels for so long; with colossal budget deficits, a new wave of corporate bond issuance, and a potentially decisive Federal Reserve meeting on the horizon, investors are expected to remain vigilant in the coming weeks. The yield on the 30-year U.S. Treasury bond rose to 5.34% in mid-August, the highest level since 2007, just 10 basis points shy of a 22-year peak. Data shows that as of Monday, this yield has closed above 5% for 55 trading days since the beginning of January, marking the highest number of days above that threshold in a year since 2006. On Tuesday, the yield stood at 5.27%. Despite Treasury Secretary Janet Yellen's announcement last month to expand the buyback of old bonds to restrain rising yields, which shocked the market, many investors do not expect a sustained reversal in yields. Following a record issuance in August, September's corporate bond issuance is expected to reach $215 billion, offsetting the impact of Treasury purchases. At the same time, few expect the concerns surrounding the U.S. Treasury deficit, which has been weighing on government bonds, to dissipate in the short term. Long-end yields are expected to remain elevated until welfare reform alters the deficit landscape, said John Briggs, head of U.S. interest rate strategy at Eastern Asset Management. The buyback is merely a drop in the bucket. The long-term bond yields exceeding 5% bring the market back to levels seen in 2006. Meanwhile, the September Federal Reserve meeting will scrutinize Chairman Kevin Walsh's determination to act on rate hikes in the face of stubborn inflation; if the Fed hesitates on this issue, a sell-off of long-term Treasuries is expected to intensify. After Walsh delivered a hawkish speech at Jackson Hole last week, traders anticipated nearly a 70% chance of the Fed raising rates by about 17 basis points in the meeting on September 15-16. The employment data for August, to be released on Friday, along with key inflation data set for September 11, will further showcase the accumulating price pressures in the economy. As longer-duration bonds are more susceptible to inflation worries, signs that the Federal Reserve would keep rates unchangeddespite accelerating consumer price increaseswould provide investors with more reasons to steer clear of the struggling 30-year Treasuries. Gregory Farinello, head of U.S. interest rate trading and strategy at AmeriVet Securities, stated, "If you want to lower long-end yields, you have to raise rates," as he anticipates that the Fed will hike rates and is optimistic about U.S. Treasury bonds with 10-year and shorter maturities. However, others have been betting that the market will weaken further. Options trading in U.S. Treasuries on Monday showed traders targeting higher levels for the 30-year yield, with one trade wagering that the yield would soar to around 5.7% before the contract expires on November 20. In the $31 trillion U.S. Treasury market, the niche positioning of 30-year bonds complicates matters further. Demand for longer-duration Treasuries primarily comes from investors such as insurance companies and pension funds, who seek to match liabilities that extend over several decades. In contrast, bond fund managers looking to reduce interest rate sensitivity (i.e., duration) in their portfolios tend to limit their exposure to the long end. Megan Swiber and Eleanor Shaw, rate strategists at Bank of America, wrote in a report on Monday, "Despite the Treasury buybacks and other recent policy measures, investors remain cautious about increasing duration," adding that "a dwindling official sector bid has made the market increasingly reliant on price-sensitive private demand to absorb the ongoing supply of Treasuries." After yields have risen by about 65 basis points from their year-to-date lows, some investors are questioning how much further long-term Treasuries can decline. Previously bearish on the long end for the year, Natixis strategist Briggs has shifted to a "more neutral" stance at current levels. He stated, "The 30-year yield is still slowly rising, but the term premium and real yields have already moved a long way; you don't have to keep climbing at a high pace forever." Priya Misra, a fund manager at JPMorgan Asset Management, remarked that the Treasurys buybacks may bolster demand for long-term Treasuries, but they "are likely to pale in comparison to the massive supply shock brought on by AI infrastructure development." She indicated, "We may be approaching a peak in long-end yields, but given the various intertwined headwinds, uncertainty still looms in the market."