Wall Street collectively doused with cold water as the U.S. Treasury's expanded bond repurchase fails to suppress long-term yields; Goldman Sachs states it cannot address the root cause of the sell-off.

Several major financial institutions on Wall Street believe that the U.S. Treasury's recent expansion of long-term Treasury bond repurchases can improve market liquidity and alleviate the selling pressure on long-term U.S. Treasuries in the short term, but it is unlikely to fundamentally reverse the upward trend in long-term yields. Firms such as Goldman Sachs, Wells Fargo, Deutsche Bank, and Frances Industrial Bank point out that macro factors like the fiscal deficit, inflationary pressures, artificial intelligence capital expenditure, and the Federal Reserve's policy outlook are the main reasons for the recent sustained increase in long-term U.S. Treasury yields. After the U.S. Treasury announced an expansion of long-term Treasury bond repurchase operations last Wednesday, the yields on the 10-year and 30-year U.S. Treasuries temporarily declined. However, this effect did not last, and long-term yields rose again in the latter half of last week. U.S. Treasury Secretary Janet Yellen then stated that the Treasury has a "vast toolbox" and can take further measures to stabilize the long-term Treasury bond market. According to reports, the Treasury may even consider using its cash reserves in the General Account (TGA) at the Federal Reserve to fund some of the bond repurchases. However, many Wall Street firms believe that as long as fundamental issues like the U.S. fiscal situation and inflation remain unchanged, merely expanding the repurchase scale is unlikely to sustain a decline in long-term rates. Goldman Sachs: Expanding Repurchases Will Struggle to Truly Reset Long-Term Rate Levels Goldman Sachs strategists George Cole, William Marshall, and others pointed out in a report released on August 21 that the U.S. Treasury's expansion of long-term Treasury bond repurchases has not addressed the main reasons behind the recent volatility in long-term yields. Goldman Sachs believes that the factors driving the selling of long-term U.S. Treasuries include the continued resilience of the U.S. economy, the market's reassessment of the Federal Reserve's policy path, persistent fiscal pressure, energy price risks, and funding demands stemming from AI capital expenditure and economic growth expectations. Therefore, even if the Treasury further expands the repurchase scale, it is unlikely to fundamentally change long-term rate levels. Goldman Sachs states: "We believe that even if the scale is expanded, the repurchases themselves are unlikely to significantly reset rate levels." The firm maintains that the true factors capable of alleviating long-term yield pressure remain the same, including a further cooling of inflation data, declining economic growth expectations, and reduced uncertainty regarding monetary policy. Goldman Sachs also predicts that following the Treasury's expansion of long-term Treasury bond repurchases, it may raise the issuance of short-term Treasury bills to gather the necessary funds, thus the direct impact of the repurchase plan on the overall yield curve is still limited. Wells Fargo: New Catalysts Needed for Long-Term Yields to Truly Decline Wells Fargo similarly believes that while the Treasury's expansion of repurchases reduces the net supply of long-term U.S. Treasuries in the market and sends a strong signal that the government is concerned about market liquidity, it is insufficient to drive long-term yields lower consistently. Wells Fargo's strategy team, led by Erik Nelson and others, stated that the market currently needs new catalytic factors to truly drive long-end yields down. These factors may include further slowing of economic growth and inflation, decreased uncertainty regarding the Federal Reserve's balance sheet and interest rate policies, the U.S. government's promotion of fiscal consolidation, or a decrease in the issuance of investment-grade corporate bonds. Wells Fargo also reminds that the market will soon focus on Federal Reserve Chair Kashkari's speech at the Jackson Hole Global Central Bank Conference. If Kashkari sends a hawkish signal, reaffirming that the Fed is committed to returning inflation to the 2% target and retaining the possibility of further rate hikes, short-term U.S. Treasury yields may face upward pressure again. Deutsche Bank, Socit Gnrale, and Canadian Imperial Bank Expect Yield Curve to Continue Steepening Multiple institutions, including Deutsche Bank, France's Industrial Bank, and Canadian Imperial Bank, also expect the yield curve for U.S. Treasuries to steepen further, meaning long-term yields will continue to rise relative to short-term yields. This trend is precisely contrary to Secretary Yellen's goal of using policy intervention to lower long-term financing costs. Deutsche Bank believes that the Treasury's expansion of repurchases indicates that the U.S. government is taking a more proactive approach to debt management and is willing to utilize policy tools and communication methods more flexibly to control long-end yields. However, the bank still expects that after the temporary rebound brought on by the Treasury's intervention ends, long-term yields may continue to rise, causing the yield curve to steepen further. France's Industrial Bank also believes that the Treasury's repurchase plan is "unlikely to change the broader forces driving overall yield increases." If there is no substantial change in the macroeconomic environment, the bank predicts that long-term yields still have room for further increases. However, larger-scale repurchases will help improve liquidity in the U.S. Treasury market and the functioning of the market, while also indicating that the Treasury may take additional measures in the future to ease long-term Treasury supply pressures. Canadian Imperial Bank believes that the recent rise in long-term U.S. Treasury yields is fundamentally supported and is not solely a result of market liquidity or speculative trading. As long as the issuance of U.S. Treasuries remains high, and nominal economic growth remains strong, long-term yields may continue to face upward pressure. Citi is Relatively Optimistic about 20-Year U.S. Treasuries In contrast to the cautious attitudes of most institutions, Citi holds a relatively positive view of certain long-term U.S. Treasuries. Citi believes that the Treasury's expansion of repurchases equates to providing a degree of policy support for the long-term U.S. Treasury market. Coupled with the current more attractive valuations, potential increases in pension fund demand, and the likelihood of weaker future economic data, the risk-return profile for 20-year U.S. Treasuries is currently improving. Citi also believes that the market's claims that long-end U.S. Treasuries have "lost their anchor" may be exaggerated. If the Federal Reserve's policy stance becomes dovish in the future, actual funds may flow back into the U.S. Treasury market after Labor Day. Additionally, since 20-year U.S. Treasuries are currently performing worse compared to the 10-year and 30-year U.S. Treasuries, Citi believes that if the Treasury adjusts its issuance structure in the future, 20-year bonds may become one of the biggest beneficiaries. Bank of Montreal: U.S. Treasury Sell-Off May Not Be Over Bank of Montreal remains cautious about short-term U.S. Treasury trends. The bank believes that despite the upcoming core PCE inflation data for July possibly continuing to show relatively mild price pressures, the overall financial environment in the U.S. remains at a relatively accommodative level compared to the past several decades. Unless there is a more sustained drop in risk assets, or corporate credit spreads widen significantly leading to safe-haven funds entering U.S. Treasuries, the sell-off in the bond market may still have further room to extend. Bank of Montreal also noted that the recent performance of the U.S. Treasury market suggests that its traditional status as a safe-haven asset may have been somewhat weakened. Wall Street Consensus: Repurchases Can Improve Liquidity but Cannot Solve Fundamental Issues In summary, the viewpoints of various Wall Street institutions indicate that the U.S. Treasury's expansion of long-term Treasury bond repurchases is not entirely ineffective. Repurchases can reduce the circulation of certain long-dated bonds in the market, improve trading liquidity, and signal to investors that the government is concerned about pressures in the long-end market. In times of extreme sell-offs, these measures may also help stabilize market sentiment. However, the issue is that the current rise in long-term U.S. Treasury yields is not solely caused by insufficient market liquidity but is concurrently driven by multiple factors such as fiscal deficits, inflation, economic resilience, AI capital expenditures, corporate bond supplies, and the uncertainty surrounding Federal Reserve policies. Therefore, firms such as Goldman Sachs, Wells Fargo, Deutsche Bank, and France's Industrial Bank generally agree that if substantial changes do not occur in the macro fundamentals, even if the Treasury further expands long-term Treasury bond repurchases, it will be difficult to sustain a decline in long-term yields. The next focus for the market will shift to U.S. inflation data, Federal Reserve Chair Kashkari's speech at Jackson Hole, and whether the U.S. government will take more meaningful fiscal consolidation measures. These factors may be key to determining whether long-term U.S. Treasury yields can genuinely end their upward trend, as opposed to merely expanding Treasury bond repurchases.