BesonT's "rescue of long-term bonds" has ignited a rebound in the global bond market, but institutions warn that the upward momentum may be difficult to sustain.

U.S. Treasury Secretary Scott Bessent plans to expand the scale of long-term Treasury repurchases. While this move triggered a global bond market rebound on Wednesday, several analysts have warned that, due to ongoing concerns about fiscal challenges and persistent global inflation, this upward trend may not be sustainable. Institutions such as Franklin Templeton, Australias Barrenjoey Markets Pty, and Nomura Holdings Inc. point out that, given the pressure many governments around the world face from debt build-up and rising budget deficits, Bessent's plans for positive spillover effects on other bond markets may be quite limited. Driven by the continued decline of yields on 30-year and 10-year U.S. Treasury bonds from decades-high levels, government bond markets across the Asia-Pacific region (from Japan to Australia) strengthened on Thursday, following the gains in European bond markets on Wednesdaythough the increases in Europe began to wane on Thursday. This round of coordinated movement stems from the U.S. Treasury's announcement of plans to at least double the scale of bond repurchases. This rare intervention measure reflects growing unease in Washington over persistently high borrowing costs. However, analysts caution that, due to entrenched worries among investors about massive fiscal deficits, oil-driven inflation, and broader supply pressures linked to the AI funding frenzy, Bessent's initiative might only serve as a short-term remedy. "This will provide a breaker for the global long bond sell-off," said Andrew Lilley, chief rate strategist at Barrenjoey Markets Pty in Sydney. "But this move alone is not enough to stop the rise in yields." Since the rebound in U.S. Treasuries on Wednesday, the yield on Japans 30-year government bonds fell nearly 9 basis points to around 4%, marking the largest single-day decline since July 14. Australian comparable sovereign bond yields dropped 4 basis points, the largest decrease in two weeks. However, some investors remain skeptical. Franklin Templeton maintains an underweight position in long-term bonds, believing that Bessent's actions are unlikely to trigger a more sustained rebound. As of Thursday, the yield on U.S. 30-year Treasuries had risen again by 4 basis points to 5.23%. "There are multiple forces currently pushing yields up and steepening the curve," Andrew Canobi, Franklin Templeton's fixed income director, stated. Major developed markets are all facing fiscal pressure and stubborn inflation, "as long as these forces dominate, I don't see much buying support for long-dated bonds." In the European markets, the yield on Germanys 30-year bonds held steady at around 3.76% on Thursday, close to its highest level since 2011this peak had already been reached before the U.S. Treasury announcement. The yield on the U.K.'s 30-year bonds increased by 2 basis points to 5.80%, after falling by 5 basis points on the previous trading day. "After the repurchase announcement, pound rates followed U.S. Treasury yields significantly flatter, but the UK lacks corresponding policy signals, and domestic fiscal risks have not disappeared," said Evelyne Gomez-Liechti, multi-asset strategist at Mizuho International Plc. "We view the long-end rebound yesterday as tactical profit-taking rather than the beginning of a sustained bull flattening." Alex Everett, who manages the Aberdeen Investments European government bond fund, noted that European bonds may underperform U.S. Treasuries. "The U.S. Treasury intervention is a strong signal that Bessent and others are willing to cap long-term Treasury yields, but this support has not extended to Europe and the UK," he said. "Based on this, one can expect a certain degree of relative weakness in these markets." Of course, the latest rebound may also reflect an improved preference among some investors for bonds from major economies with healthier fiscal standings. That being said, although governments and central banks indeed have powerful tools to influence markets, the long-term fiscal risks faced by developed economies are entrenched, meaning that investors are likely to continue testing these authorities' bottom lines. "Trying to go against those who set the rules is always risky," said Andrew Ticehurst, senior rate strategist at Nomura Holdings in Sydney. "But the weak underlying fundamentals are substantial and increasingly apparent."