The brief calm in the bond market appears to be fading, with long-dated Treasuries resuming their selloff on Thursday and continuing to weigh on equities. US stock index futures are trading mixed as investors begin to question the effectiveness of the Treasury Department's support measures. Meanwhile, rising oil prices have reignited concerns over inflation risks. As of writing, Dow futures are down 0.33%, S&P 500 futures are down 0.11%, and Nasdaq futures are down 0.23%. The MSCI All-Country World Index, which had fallen for four consecutive sessions in its longest losing streak since March, is up 0.30% today. In Europe, the pan-European Stoxx 600 index is slightly lower, extending its longest losing streak since 2026.
Government bonds are showing divergent moves. Marta Norton, Chief Investment Strategist at Empower, a retirement and wealth management services firm, noted: "It would be short-sighted for tech companies to cut AI spending because of concerns about the yield curve. The fundamental logic behind AI continues to advance." She added that because tech firms cannot afford the potential losses of falling behind in the AI race, they are unlikely to halt AI investment, which may limit the impact of bond market volatility on AI stocks.
Assessing Bessent's Surprise Move
Traders are evaluating the unexpected measures recently announced by Treasury Secretary Bessent, who declared an expansion of long-dated bond buybacks to curb rising yields that had climbed to near 20-year highs. John Briggs, US Rates Strategist at Natixis, commented: "Whatever the specific reasons, the recent market weakness clearly prompted a response from the Treasury Department." He noted that the announcement was "highly unexpected" and therefore sent a strong signal.
Elevated yields continue to constrain stock valuations. Although the S&P 500 hit an all-time high last week, it remains below levels seen since Monday. Graham Secker, Head of Equity Strategy at Pictet Wealth Management, stated: "If there are structural reasons behind rising bond yields, short-term intervention can only buy some time and may not necessarily change the long-term trend."
Awaiting Nvidia's Earnings
With limited economic data for the rest of the week and reduced trading volumes due to the holiday season, investors are looking ahead to Nvidia's earnings report next week for further clues on the true state of AI infrastructure spending. Chip stocks have remained under pressure recently, giving back some of this month's rebound after the sharp volatility seen in July. Secker added: "The market is waiting for new information or for the market itself to send some kind of signal. When you see the Korean market rise 5% in one day and fall 5% the next, that level of volatility does not boost investor confidence, especially for the hedge fund community."
Treasuries Resume Their Decline
Treasuries are falling again, with the 30-year yield rising 3 basis points to 5.22%, as the impact of Bessent's attempt to lower funding costs fades. The yield had dropped to 5.1765% the previous day following the Treasury's announcement to increase long-dated bond buybacks. Bond yields and prices move inversely. The benchmark 10-year Treasury yield is up 1.9 basis points to 4.6723%, after falling 5 basis points on Wednesday. However, German and Japanese government bond yields are pulling back.
Lawrence Gillum, Chief Fixed Income Strategist at LPL Financial, remarked: "The buyback program is more like a band-aid than a panacea. But it reminds the market that the Treasury is paying attention and will do what it can to prevent yields from rising too quickly to too-high levels." The market is closely watching this trend to gauge how much confidence bond investors have in the Treasury's ability to halt the bond selloff that has impacted multiple asset classes.
Mark Cudmore, Executive Editor at Bloomberg Markets Live, observed: "After a month of the Treasury pushing beyond traditional policy boundaries with proactive interventions, the irony is that what might truly have long-term market impact is what Scott Bessent explicitly avoided doing in July: selling the dollar." Eurozone government bond yields are slightly lower, with the German 10-year yield down 1 basis point to 3.251%. Erik Liem, an analyst at Commerzbank, noted: "Supported by the positive news of the US Treasury buyback program, the German bond market continues to show signs of stabilization." France is set to conduct two rounds of bond issuance: the first for short and medium-term nominal bonds, and the second for inflation-linked bonds.
Dollar Continues to Weaken
The dollar is extending its decline, with the dollar index, which measures the greenback against six major currencies, down 0.11% to 98.72. The euro, British pound, and Swiss franc are all strengthening against the dollar. The Federal Reserve's latest policy meeting minutes, released Wednesday, showed that officials have grown more concerned about inflation. The minutes revealed that "several" policymakers appeared ready to support a rate hike, and "many" officials indicated that borrowing costs may need to rise in the future if inflation fails to decline toward the Fed's 2% target.
Filip Andersson, an analyst at Danske Bank, said that the increased issuance of short-term Treasuries to fund the expanded bond buybacks would tie government financing costs more closely to Fed monetary policy. He suggested that renewed concerns about Fed policy independence may be one reason for the dollar's weakness following the Treasury's buyback announcement.
Bitcoin Breaks Above $70,000
Bitcoin has surpassed $70,000 for the first time since June. The cryptocurrency is maintaining its strength after hitting an 11-week high overnight. Driving factors include Trump's urging of Congress to pass cryptocurrency regulation legislation and the Treasury's expansion of long-dated bond buybacks. Trump has called on lawmakers to pass a "fair version of the Clarity Act" (the crypto market regulation bill), which remains stalled in the Senate.
Trump Launches Massive Economic Action Against Iran
Brent crude oil is approaching $94 per barrel, as disruptions to shipping through the Strait of Hormuz show no clear signs of easing. This follows President Trump's statement that he would launch an "ECONOMIC D-DAY" against Iran, including measures targeting all businesses related to Iran's economy. Oil prices have risen for a fifth consecutive session as Trump's pledge of large-scale economic action against Iran suggests further escalation in the Middle East, reducing hopes for a near-term agreement. Analysts at Sucden Financial noted: "The US currently has no plans to negotiate with Iran, and the situation in the Strait of Hormuz remains tense with limited shipping volumes. Both sides still have differences over conditions for reopening. This keeps a risk premium in the energy market and limits investors' room to reduce inflation risk pricing, even though the Treasury's actions today have provided some respite for risk assets."
Gold is moving lower, falling below $4,500, after rising the previous day on a weaker dollar and lower Treasury yields. The gains were driven by the Treasury's announcement to at least double the scale of its bond buyback program.
JPMorgan Warns: Treasury's Doubled Buybacks Lack Credibility
JPMorgan strategists have warned that the market may view the Treasury's surprise move to curb long-term funding costs as lacking credibility, which could push term premiums and yields higher over time. Strategists including Jay Barry wrote in a report: "Without genuine fiscal consolidation, we fear the market will see this action as lacking credibility. If the Treasury becomes more opportunistic in its debt management approach and further deviates from its 'regular and predictable' principles, this could lead to higher term premiums and yields over time."
Aegon Defies Treasury: Expanded Long-Dated Buybacks 'Meaningless'
Despite Treasury Secretary Scott Bessent's efforts to suppress long-term bond rates, Aegon Asset Management remains firmly positioned for the spread between US short-term and long-term borrowing costs to continue widening. In the view of Aegon portfolio manager James Lynch, expanding long-dated Treasury buybacks "makes little sense" and does not change his outlook that both US and European yield curves will continue to steepen. Lynch stated: "The fiscal issues — the massive deficit, the impact of mega-cap corporate debt flooding the market, inflation still above target, combined with unclear Fed communication — all inject an additional premium into the market. I don't see these factors disappearing anytime soon."
Analysts: Expanded Treasury Buybacks May Worsen Inflation Risks
Economists and bond traders believe that if the Treasury persistently suppresses long-term rates through debt structure adjustments, it could stimulate economic activity and increase inflation stickiness, while making US government debt financing costs more vulnerable to short-term rate changes. This could also put greater pressure on the Fed to maintain its policy independence. Joseph Brusuelas, Chief Economist at RSM US, said policy is gradually moving toward a direction that may require the central bank to support fiscal objectives. He believes Treasury intervention could cause market distortions and create a more difficult policy environment for the Fed under Warsh's leadership. Wil Stith, Senior Bond Portfolio Manager at Wilmington Trust, noted that if inflation remains unchanged or continues to rise, the easing effect from the Treasury's efforts to lower long-term yields could force the Fed to raise rates more aggressively.
AI Debt Wave Approaches: September is the Real Test for Treasuries
As the Treasury expands its long-dated bond buyback program to ease pressure on the Treasury market, another massive wave of debt financing is unfolding. The core driver of this financing expansion is AI infrastructure spending. The US investment-grade corporate bond market typically sees a surge in issuance after Labor Day. With hyperscale cloud computing companies' financing needs increasing, September corporate bond issuance could reach $200 billion, potentially delivering a fresh shock to the already pressured Treasury market. According to market estimates, US investment-grade corporate bond issuance has grown 38% year-over-year since 2026, with full-year issuance projected to hit a record $2.1 trillion. A significant portion of this new supply comes from AI-related capital expenditures. This supply wave, combined with US fiscal deficit expansion, rising inflation expectations, and Fed policy uncertainty, is reshaping the supply-demand dynamics of the fixed income market.
US Economy at Risk of 'Collapse at Any Time'? Three Indicators Flash Red, AI Bubble is the Last Straw
Tuomas Malinen, a Finnish economist specializing in financial crises and geopolitics, has analyzed multiple key indicators in the US financial markets and economy, concluding that while no clear recession timeline has emerged, downside risks have risen notably. He points out that US bankruptcy filings have risen to their highest level since the pandemic, and the private sector yield curve is signaling that a "US recession is about to begin." Meanwhile, US manufacturing new orders are the only indicator still sending positive signals, but this is insufficient to offset other risks, as the current US economic growth appears highly concentrated in a few sectors. He is particularly concerned that the AI investment boom is forming a new market bubble. If the AI trade suddenly collapses, the economy could weaken as rapidly as it did after the dot-com bubble burst.
Focus Stocks
Walmart shares are down 6%. The company's revenue beat expectations, but US same-store sales grew only 2.6%, below the 3.5% expected by analysts surveyed by FactSet. The company's third-quarter and full-year earnings per share guidance also missed market expectations.
Cryptocurrency-related stocks are broadly higher, driven by sharp gains in Bitcoin and Ethereum prices, against the backdrop of President Trump pushing Congress to pass crypto-friendly legislation. Coinbase shares are up nearly 7%; MicroStrategy has surged 10%; Circle (CRCL) is up 7.5%; and both Marathon Digital and American Bitcoin are up approximately 5%.
Alibaba has reported its June quarter earnings, with profits dragged down by a surge in AI-related investments and capital expenditures up 75% for the quarter. Its US-listed shares are down 3.4%.
Moderna shares are retreating 7% after soaring 177% the previous day on positive Phase 3 clinical trial results for its cancer vaccine. The trial showed that the experimental cancer vaccine developed in partnership with Merck, combined with Keytruda, achieved key study endpoints in high-risk/advanced melanoma patients who had undergone complete surgical resection of visible lesions.
Nordson (NDSN) shares are up 5.4% after the company raised its full-year guidance. The manufacturer of spray and adhesive application equipment now expects full-year adjusted EPS in the range of $11.80-$12.00, up from prior guidance of $11.30-$11.80, and above the FactSet consensus estimate of $11.60.
Advance Auto Parts shares are plunging nearly 15% after mixed fiscal second-quarter results. The company reported revenue of $1 billion, below the $2.04 billion expected by LSEG analysts; same-store sales fell 0.5% versus the 1.4% growth expected by FactSet; however, earnings per share beat expectations.
Beauty company Coty (COTY) shares are down 14.5% after reporting a larger-than-expected quarterly loss and stating that fiscal 2027 will be a "transition year." The company posted an adjusted fourth-quarter loss of $0.02 per share, wider than the $0.01 loss expected by FactSet analysts; revenue, however, beat expectations.
Chip components maker Wolfspeed shares are down 10% after reporting quarterly revenue of $149.6 million, below the FactSet consensus of $150 million. However, the company's loss per share of $2.26 was better than the analyst expectation of a $2.45 loss.
NetEase shares are down nearly 4% in US trading after its quarterly results missed analyst expectations.
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