The US Treasury bond market faces a "policy test" this week: the Treasury Department's buyback program will double and take effect on Wednesday, while CPI data on Friday will set the tone for the suspense surrounding the September interest rate hike.

After experiencing severe fluctuations in the U.S. government debt market last week, U.S. Treasury bond investors are preparing for another trading week that could lead to larger price fluctuations. In the first week following the Labor Day holiday, two significant events will take center stageon Wednesday, the U.S. Treasury will announce specific details of its expanded bond buyback program set to begin the following day, with a scale potentially double the previous cap or even higher; on Friday, the August inflation data will be released, which is viewed by Federal Reserve Chairman Kevin Walsh and his colleagues as a core basis for determining whether to raise interest rates this month. These two events will serve as a critical test of the current divergence between U.S. monetary and fiscal policieswhile the Fed's hawkish inclination to raise rates is pushing up short-term yields, the Treasury's long-term bond buyback operations aim to suppress long-term borrowing costs. The market stands at the intersection of these opposing forces, waiting for a decision on direction. Wednesday: Balint's "Buyback Weapon" Officially Readied On September 9, the U.S. Treasury will officially launch its expanded long-term Treasury bond buyback operations. On August 19, as the yield on 30-year Treasury bonds soared to its highest level since 2007, Secretary of the Treasury Janet Yellen announced that the liquidity support buyback scale for 10- to 30-year Treasury bonds would be "at least doubled," increasing from $2 billion per operation to at least $4 billion. Moreover, the wording from the Treasury stated "at least doubled"this allows Balint greater flexibility. Tim Musial, head of fixed income at CIBC Private Wealth, noted that unlike fundamental factors such as economic growth and inflation, the Treasury's buyback program is "hard to predict," suggesting that investors "may need to lower their risk tolerance a bit." In the tentative schedule from September 9 to November 4, the total buyback amount for 10- to 30-year U.S. bonds may reach up to $14 billion. Some operations could even have a single maximum amount of $16.5 billion. If the actual buyback scale far exceeds $4 billion, it might act as a catalyst for bond prices to rise. However, Balint's move has also sparked market controversy. His former mentor, billionaire investor Stanley Druckenmiller, publicly criticized this intervention as "price management disguised as liquidity support," arguing that "a government trying to prop up prices against fundamental factors will ultimately fail." Nonetheless, the funds are already prepared as market observers have noted, "The buyback money is ready; you short-sell and I'll buy, I've warned you." Friday: CPI Sets the Stage for September Rate Hike Speculation If the buyback plan is the fiscal side's attempt to "stabilize" long-term yields, then Friday's CPI data could directly determine the direction of monetary policy. The August non-farm payroll report has already released strong signals163,000 new jobs were created, nearly three times the market expectation of 56,000. As a result, according to the CME FedWatch tool, the market now estimates the probability of a Fed rate hike in September at approximately 60%. However, Walsh has clearly stated that inflation data is the key to the final decision. There is a marked divergence on Wall Street: Bank of America Securities expects a 0.22% month-over-month increase in the core CPI for August, viewing inflation as still relatively high enough to support a September rate hike; Citibank forecasts only a 0.18% increase in core CPI, believing a hike may not be necessary; and Morgan Stanley anticipates a 0.23% month-over-month increase in core CPI but expects the Fed to maintain current rates. Economists widely predict that the August CPI will increase by 3.4% year-over-year, with core CPI rising by 2.4% year-over-year. Fed Board Member Christopher Waller is seen as a key swing vote for the September meeting. According to Bank of Americas analysis, Waller's implicit rate hike threshold is a month-over-month increase in the August core PCE exceeding 0.30%. BofA predicts core PCE to be around 0.24%, below this threshold, yet still believes that under Walshs support, there may be sufficient majority within the committee for a hike. Citibank, on the other hand, believes Waller's comments have shifted the threshold for identifying "overheating" inflation upwards, suggesting any month-over-month increase still rounded to 0.2% could be considered sufficiently moderate. CIBC's Musial described the non-farm report as "just an appetizer""The main course will be served when the inflation data is released on September 11." Conflicting Policy Forces These two significant events reveal the deepest contradictions currently facing the U.S. market: monetary policy and fiscal policy are working in opposing directions. Walsh clearly stated at the Jackson Hole meeting that "the Fed's primary focus at present should be on prices." The Fed's actions are inclined to increase short-term yields and curb inflation through rate hikes. In contrast, Balint's buyback plan aims to lower long-term borrowing costs the yield on the 30-year Treasury bond was still close to about 5.25% last week. As the Fed tries to tighten financial conditions, the Treasury is using buyback operations to attempt to ease long-term rates. Investors will process these two conflicting forces simultaneously this week. Short-term Treasuries may come under pressure due to rising rate hike expectations, while long-term Treasuries may gain support from the stabilizing effect of the buyback planhow the shape of the yield curve evolves will depend on which force prevails.