US Treasury Repurchase Fails to Curb Yield Surge

The 10-year US Treasury yield rose to 4.85%. This level is the highest since November 2023. The US Treasury executed a $6 billion repurchase of long-term bonds. This amount was three times the initial $2 billion plan. The market reaction was a sell-off in long-duration assets. The 30-year yield also broke above 5.3%.

According to GN auto markets/commodities: gold prices, the primary driver is not inflation expectations. It is a systematic retreat by major buyers. Demand for US debt is collapsing. Sovereign wealth funds are reducing exposure. Private investors are increasing their share of the demand base. This shift weakens the price support for government debt.

Sovereign funds reduce bond exposure

Norway's Government Pension Fund Global is adjusting its portfolio. It holds approximately $215 billion in US bonds. The fund proposed reducing the weight of government bonds in its benchmark index. The target reduction is from 70% to 50%. The allocation of US bonds will drop from 34.1% to 21.9%. This move represents a reduction of about $80 billion.

Lacy Hunt, a prominent bond investor, has shifted his stance. He has been bullish on US bonds for 40 years. He recently cut his portfolio duration from 21 years to under one year. This action signals a bearish outlook among long-term holders. The trend among major institutional investors is moving toward shorter maturities.

Yen carry trade reverses capital flows

Japan holds about $1.1 trillion in US bonds. It is the largest overseas holder. The Bank of Japan is expected to raise rates by 25 basis points. The market prices a 97% probability of this hike. The new rate would be 1.25%. As domestic yields rise, the incentive for the yen carry trade decreases.

Capital that previously bought US bonds with cheap yen is flowing back. Japan's holdings dropped to $1.143 trillion by May 2026. This represents a monthly decrease of about $67 billion. The UK also reduced its holdings by $8.7 billion in June. Turkey nearly closed its entire position in US debt.

Global central banks tighten policy

The European Central Bank raised three key interest rates by 25 basis points. The deposit facility rate is now 2.50%. This is the second rate hike of the year. The US Federal Reserve faces pressure from revised inflation data. July PPI data was revised up by 0.1%. The probability of a US interest rate hike is near 70%.

The federal deficit for fiscal year 2026 is expected to be between $1.9 trillion and $2.1 trillion. Supply of new debt continues to expand. Price-insensitive buyers like central banks are less active. Private investors must absorb more of the supply. This structural imbalance supports higher long-term yields.