The yield on 10-year U.S. Treasury bonds rose to 4.704%, and the market's reaction to the divergence in policies between the U.S. Treasury Department and the Federal Reserve has intensified. The Treasury Department is attempting to lower long-term financing costs, but hawkish interest rate expectations and the pressure from new bond issuance continue to dominate the trend in the bond market.

Ministry of Finance expands repurchase efforts

U.S. Treasury Secretary Scott Branson increased the scale of treasury bond repurchases to $4 billion per week, hoping to use this to lower long-term borrowing costs. After the announcement, the yield on 10-year U.S. Treasuries fell for a time, but then quickly rebounded.

This indicates that the actions taken by the Ministry of Finance temporarily alleviated market pressure, but failed to change investors' overall assessment of long-term interest rates.

Rebound after Jackson Hole speech

Subsequently, Federal Reserve Chairman Kevin Warsh's hawkish remarks at the Jackson Hole Symposium put further pressure on the bond market. Market attention returned to inflation trends and interest rate prospects, and long-term government bonds faced increased pressure.

In this context, investors are more concerned about whether the Federal Reserve will maintain high interest rates for a longer period of time, rather than the temporary intervention measures taken by the Treasury Department.

Deficits and AI financing drive up supply

The report also mentioned that the U.S. government debt continues to rise, with the fiscal deficit expected to reach $1.9 trillion. At the same time, large-scale financing by corporations for AI infrastructure is also increasing the supply of bonds.

An increase in bond supply usually leads to a decline in bond prices and a rise in yields. Next, the market will observe whether the Treasury Department's repurchase operations can offset the ongoing pressure caused by the Federal Reserve's policies and the additional supply.