美债回购利好消退，鲍威尔杰克逊霍尔演讲在即

Bloomberg Audio Studios podcasts radio news. Welcome to the Daybreak Asia podcast. I'm Doug Krishnner. In the US, the Treasury is deepening its resolve to get government bond yields lower. On Thursday, the department said it's expanding efforts to buy back longerterm government debt. In an interview with CNBC, Treasury Secretary Besson said buybacks could be more than $4 billion per operation. You may recall on Wednesday the Treasury Department surprised markets in saying it would increase by at least double the size of buybacks for longerdated securities.

Now that announcement, to be fair, did send long-term yields lower, but the move proved to be short-lived. For a closer look, I'm joined by Bloomberg's David Finity. He is our FX and rate strategist joining from our studios in Singapore. David, thank you for being here. So, we ended the New York session on Thursday at 4.70%. But if you look at where we were Wednesday, the impact of that move by the Treasury Department was like a flash in the pan.

What's your sense of what's happening here?

Yeah, I think look at the end of the day, you had to put everything in perspective. He's certainly si he being the Scott Besson is certainly signaling intentions but in reality do those come intentions come to fruition and one of the catches is literally for him is the size of the bond market. I mean we had headlines out we being Bloomberg had headlines out this week saying that the uh public debt is 40 trillion now and obviously increasing.

So you have to think okay that's a big that's bonds of alterations and everything but that's a huge pull. So if you were talking about a few billion which is you say large but in the scale of 40 trillion you go that's chump change really and I think this is one of the problems that Bessant has in the end of the day it's like any intervention he tries to do depending on the scale of it will have a limited impact and even as we've seen intervention with Japan it doesn't change have a lasting impact if it doesn't change the fundamentals now Scott Bess said well the market is missing the fundamentals the market will quickly So no, we're not.

Oil is rising again. Inflationary pressures are building. Inflation is still above your uh the target. You're running ever US being is running ever and ever growing larger public deficits. So at the end of the day, the Treasury market goes look what you're borrowing from us. We're the lender. We sort of set the rate and it's based on what we perceive. So you can say we're wrong, but we're going to day we are the lender and we will say what the price is.

So, at the end of the day, I think he's he he said last year, look, they want to 10-year yields are his and the Trump's administration focus. Therefore, obviously can't be happy with the direction they're going. But you, if you're the Treasury market and the lenders, you're going, well, I'm raising the price because I've got in reality good reason to raise the price.

Well, you touched on two key things. One being the level of inflation here in the US, well above the Fed's target. one of the reasons that there may have been a little upward pressure on the bond market part or on the long-term end of the Treasury curve particularly at a time when I think the market's struggling to figure out where the Fed is in the conversation around inflation. We know what we have heard from Chair Wars saying that he is adamant about getting inflation under control.

I think the bond market may be a little confused though with some of the messaging that's attached to that. Then there is the fiscal deficit story which you touched upon. I'm wondering too when you look at the flood of AI related debt that's coming to market, new corporate supply and the level of competition that that introduces for US treasuries whether that has become a major factor as well.

Look it certainly has. I think at the end of the day, you go to basic economics 101, prices determined by supply and demand and demand for longerterm bonds if we view it that way rather than just treasuries is affected by supply. So you're, you know, if I'm buying treasuries, I'm looking what else could I buy. So yes, there's different risk parameters certainly within that context, but end of the day, it's you know, a long bond, a long bond, and you're going to pick what you want.

This whole supply would impact that sort of pricing. So I think that is another factor again that has to be born into this and you have to think look with the deficit obviously we don't know what def public deficit is this year but you know last year was over 5% the years before that it's been over 5% it's been over 6%. You know this is the catch for the US is at the end of the day it continues to run a public deficit no matter who is in charge.

It could be Democrat. It could be Republican. Over the last 20 or so years, it doesn't matter who is in charge. The deficit gets larger and larger and larger because they keep running percentage deficit. Even if you do it as a percentage of GDP, which is fair barometer, it's still five to six% or higher during COVID times. And that is the catch. It's it's just ever growing. So the supply is coming in from the Treasury.

It's coming on from corporates. And at the end of the day with the present in existing inflation pressures the market is going look this is what we deem to be a fair price. Now circumstances could change and they say the price will change. In theory the market has all the information and therefore it makes an adequate price and goes that's the fair price. So while as said Scott Besset may say it's missing some fundamental data or whatever the market goes no I'm not.

And I think what becomes really interesting now is we'll have Scott Pessant talk maybe today, maybe early next week, but then very quickly we go to Governor Walsh and his Jackson Hole speech and it's going to be very interesting to see what he says given this backdrop and given a backdrop that he doesn't like communicating forward guidance. Well, at the end of the day, if you don't give the market something next week, the market's going, "Okay, I'm just going to do what I want to do."

Hm. Let's talk a little bit about what's going on in Japan because we had the uh print on CPI for the month of July. So, retail inflation in Japan accelerated for a second straight month. Overall CPI up at an annual rate of 1.9%. Do you think that's going to keep pressure on the BOJ to really tighten again in the near term, maybe as soon as September? What be honest whatever that data was unless it came in way way way underestimate which obviously it didn't then I think the BOJ is at the moment the rhetoric is I'm hiking in September or not definitely October and basically now the market's going we're pricing that in so you sort of have to I'm forcing your hand now you're the signals are that you're going to do it I'm there go taking you at your word if you do not do it therefore the yen will come under pressure very very quickly so really at the end of the You know, you could go, oh, September, October, you know, it's a month between, you know, pick which one you want.

Uh, September's looking, it's certainly a good chance one in September. I think the question becomes now again even at the next meeting is they hike or not hike. If they don't hike, they go, okay, October is basically market's going, you got to do it in October now. Then the question becomes how many more hikes are we going that so you're looking not just when the hike is, it's how many more hikes, where is that terminal rate and how quickly are we getting there? it the indications are a quicker process.

So rather than being once every six months maybe once a quarter you know something like that. So but the markets literally cares about that how quick how high where are we going we've priced in something are we accurate or not accurate and if we're not accurate we will adjust upwards or downwards