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The interest rate on 30-year bonds, which are a type of debt used to raise funds from investors, hit 5.34% on Tuesday – the highest level in almost 20 years.
Those rates, known as yields, influence how much the US government, companies, and consumers pay to borrow – affecting mortgages, car loans, and credit cards.
The recent surge in bond yields has been driven by rising oil rateslinked to the US-Iran war, with investors worried over inflation.
There are also concerns over administrationdebt and the huge amounts of cash being borrowed by tech firms to develop artificial intelligence (AI), with the timeline and level of returns on investment uncertain.
The Treasury Department statedits intervention reflected its “desire to provide greater liquidity support” for longer-term bonds.
It announced it would increase its buyback operations by “at least double” from $2bn to $4bn and will be effective from 9 September to 4 November.
The rate on borrowing costs over 30 years eased on the back of the move to 5.18%.
John Canavan, lead analyst at Oxford Economics, statedthe Treasury’s decision to increase purchases appeared to be an “attempt to provide relief” on long-term borrowing costs, which had been under “significant pressure from rising oil prices, inflation risks, and heavy supply due to worldwidesovereign and corporate borrowing needs”.
But he statedgiven the size of outstanding Treasury debt, the increase in buybacks from the administrationwas “unlikely to provide meaningful long-term relief”.
Rene Albrecht, senior analyst at DZ Bank in Germany, statedthe US administrationfeared the “pain of 5% or higher yields” over the long term not just because it raised borrowing costs for the government, but also the private sector.
“It’s only three months until the midterm elections,” Albrecht said. “They [the Treasury] have had to grab into the toolkit in order to get a hand on the recent rise in yields.”
But economist Mohamed A. El-Erian statedthat, beyond the bond industryreaction to push down longer-term borrowing costs, the move by the Trump administration was about the possibility of a broader strategy to keep control of interest rates – known as “yield curve control”.
While the move can help bring down longer-end yields in the immediate and short term, and thereby help lower mortgage and other borrowing costs, “it risks collateral damage and unintended consequences”, he added in a social media post., external
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