Yesterday’s biggest positive was Treasury intervention in the bond market.

The US Treasury announced that it will double long-duration bond buybacks to at least US$4 billion per operation from September through early November. The move followed the 30-year Treasury yield reaching nearly 5.34%, its highest in almost two decades.

 That is meaningful relief, but I would not interpret it as the end of the bond problem. The underlying issues—US fiscal deficits, inflation and enormous AI infrastructure financing requirements—remain unresolved.

They showed that “many” policymakers believe higher rates may ultimately be required if inflation does not continue falling, while three policymakers had already voted for a 25 bp hike at the July meeting.

The current policy rate remains 3.50%–3.75%.

The Fed still looks likely to hold at the 15–16 September meeting, but markets are now pricing better-than-even odds of a rate increase by the October meeting, and a high probability of one by December if inflation remains sticky.