US Treasury doubles long bond buybacks as yields surge

Summary

US Treasury yields steadied after the government doubled buyback sizes for 10 to 30-year debt to at least $4 billion per operation, following a sharp bond selloff. US debt has now exceeded $40 trillion, while Japanese government bond yields also eased. Australian unemployment rose to its highest level since late 2021, reducing pressure for another near-term Reserve Bank of Australia rate increase.

Equities

The FTSE 100 rose 0.1% to 10,743.35 on Wednesday, while the FTSE 250 gained 0.3% to 24,643.52. UK inflation increased to 2.9% in July from 2.6% in June, in line with economists’ forecasts, while expectations remained that the Bank of England would leave interest rates unchanged in September.

Gold miners recorded some of the strongest gains in London on Wednesday as the gold price rose sharply. Fresnillo, Endeavour Mining and Pan African Resources all climbed more than 7%, while Oxford Nanopore Technologies jumped 14.3% after reporting upbeat half-year results.

Shell and BP both rose around 1% on Wednesday as oil prices increased for a fourth consecutive session amid continuing uncertainty over shipping through the Strait of Hormuz. Trainline fell 14% after Britain’s competition regulator opened an investigation into whether the company, Virgin Atlantic and RED Driving School were sufficiently transparent about total prices when customers made bookings.

Smith+Nephew dropped 3.8% on Wednesday after announcing that chief financial officer John Rogers would leave the medical products company for an external role. Rogers is stepping down after roughly two and a half years with the business.

In the US, stock index futures were broadly steady early on Wednesday following Tuesday’s technology-led decline. At 6:09am ET, Dow futures were up 0.02%, S&P 500 futures were down 0.04% and Nasdaq 100 futures fell 0.22%, after the Philadelphia semiconductor index had dropped almost 5% during Tuesday’s session.

Chip stocks remained under pressure before Wednesday’s opening bell, with Marvell and Intel both falling more than 1% in pre-market trading. Nvidia had also recorded a sharp decline during Tuesday’s technology sell-off, while most other large technology and growth stocks were little changed before the market opened.

Estée Lauder rose 6.8% on Wednesday after the cosmetics group forecast annual profit above Wall Street expectations, supported by stronger demand in China. Investors were also awaiting results from Target and TJX Companies on Wednesday, with Walmart due to report on Thursday.

Forex & Commodities

The US dollar remained under pressure early this morning, with the dollar index at 98.85, around its lowest level since mid-May. The euro rose to $1.167, its highest level since late May, while the British pound strengthened to $1.361, close to a three-month high.

The Japanese yen strengthened early this morning to 158.6 per US dollar, moving further away from the closely watched 160 level. The yen remains considerably weaker than the levels reached after the joint US and Japanese intervention at the end of July, which had temporarily pulled it away from a 40-year low near 164 per dollar.

The dollar weakened after the US Treasury announced on Wednesday that it would double liquidity-support buybacks for longer-dated government debt. The move followed a sharp bond sell-off that had pushed the 30-year Treasury yield to 5.337%, its highest level in 19 years; the yield subsequently fell to 5.184%.

Spot gold fell early this morning to $4,488 an ounce as investors took profits following Wednesday’s strong advance. Gold had earlier reached $4,526, its highest level since 2 June, after rising more than 4% on Wednesday as the Treasury announcement pushed the dollar and longer-term US bond yields lower.

Oil prices rose for a fifth consecutive session early this morning as the continuing US-Iran conflict and restricted shipping through the Strait of Hormuz kept pressure on Middle Eastern supplies. Brent crude climbed to $91.97 a barrel, while September US West Texas Intermediate rose to $86.00; both benchmarks had closed on Wednesday at their highest levels since 24 July.