US: Long-End Yield Risks Contained – ING

ING strategist Padhraic Garvey said in his latest research note that the U.S. Treasury's decision to double the size of its buyback program for 10- to 30-year bonds has more of a "dampening" than "reversing" effect on upward pressure on long-end yields. Despite the program's considerable scale and the potential for further expansion, the structural forces pushing long-end yields higher have not disappeared.

**Doubled Buybacks: A Cushion, Not a Shift**

Garvey noted that the doubled buyback size signals to the market the Treasury's concern over long-end supply-demand dynamics, helping to absorb some of the supply pressure from ultra-long bonds. However, he stressed that this operation is essentially a "cushion" rather than a "rudder"—it can ease the upward slope of yields at the margin, but it is insufficient to change the underlying logic of rising long-term rates. According to his analysis, the program could still be expanded further, but even with increased scale, its effect on suppressing long-end yields would primarily be to "reduce pressure."

**Structural View: Steeper Curve and Higher Rate Center**

From a longer-term structural perspective, ING's baseline expectations for the U.S. Treasury market have not changed due to the buyback program. The firm believes the U.S. Treasury yield curve will steepen, and overall interest rate levels will gradually rise. In a risk-on environment, curve steepening is mainly driven by long-end yields, unless new changes emerge in subsequent economic data. This implies that buyback operations are more about smoothing the pace than ending the trend of rising long-end rates.

**Inflation Data Remains Key Near-Term Variable**

Garvey also mentioned in the note that while the rise in Treasury yields appears superficially linked to geopolitical conflicts and higher energy prices, the market's current pricing expectations for inflation remain in a process of adjustment overall. In the near term, the release of key inflation data will serve as an important window for observing yield movements. If the data reinforces expectations of inflation stickiness, upward pressure on long-end yields could re-accumulate, and the cushioning effect of the buyback program would face a test.