US: Yields Face Risk of Renewed Surge – Rabobank

Rabobank Senior US Strategist Philip Marey noted in his latest analysis that US Treasury yields still face the risk of a renewed surge. Although the Treasury Department unexpectedly stepped up its buybacks of long-dated bonds, this move only briefly interrupted the upward trend in yields and did not fundamentally change the market's direction.

**Buyback Operations Unlikely to Alter Upward Rate Pressure**

Marey believes that the Treasury's buyback operations are more of a technical adjustment and are unlikely to offset the structural factors driving yields higher. The repricing of inflation risk by the market, supply pressures from a widening fiscal deficit, and uncertainty over the Federal Reserve's policy path together form the underlying momentum pushing yields upward. While the increased scale of buybacks absorbed some long-dated bond supply in the short term, it has not changed investors' pricing logic for duration risk.

**Inflation and Policy Expectations Remain Core Variables**

According to Rabobank's analysis, market expectations for the Fed's rate path are still undergoing continuous adjustment. The market had previously shifted from expectations of modest rate hikes to rate cuts, but the sustainability of this shift is questionable. Marey's warning suggests that if inflation data or fiscal supply again exceed expectations, yields could rebound quickly. Investors' willingness to hold long-dated bonds will depend on the balance between real interest rate levels and inflation risk premiums.

**Potential Impact on the Dollar and Risk Assets**

If yields resume accelerating upward, the dollar could gain temporary support, while simultaneously putting pressure on rate-sensitive growth stocks and long-duration assets. Rabobank's previous analysis showed a high correlation between yield movements and the dollar index, with falling yields having previously pushed the dollar index below key thresholds. Conversely, a renewed surge in yields could also reverse this pattern, warranting investor vigilance.