The ramifications of the unrelenting rise in long-term US bond yields were acutely in focus last week. 

US Treasury Secretary Scott Bessent surprised the market with a strategy to burn bond market short-sellers by doubling the size of long-duration bond buybacks out to the end of the year. 

Bessent has promised lower long-dated yields since gaining office and this strategy is the latest in a long line of attempts to achieve that goal. 

It lowered yields for a day or so. 

But related strength in gold (+2%), bitcoin (+22.6%) and commodities (Brent crude +6.6%) – along with US dollar weakness (DXY -0.9%) – was maintained to the end of the week.

We will see how Fed Chair Kevin Warsh responds to this move in his commentary from Jackson Hole this week. 

Minutes from the July Fed meeting were seen as less hawkish than feared. This had a modest calming effect and saw chances of near-term hikes little moved.

Elsewhere, data centres (DCs) are becoming increasingly critical to upcoming US elections. Numerous state governors who have been big supporters of DC development are now under pressure from rivals to stem further development on escalating concerns about power prices and water consumption.

Locally, the FY26 Australian reporting season heads into its last week. 
Results have been very mixed and share price reactions have displayed the volatility evident in previous seasons.

The S&P/ASX 300 fell 0.4% last week, while the S&P 500 was down 1.4% and the NASDAQ lost 2%.

Bessent and Treasury activism 

The US Treasury announced it would double its buyback at the long end of the government bond yield curve. 

This aims to lower long-term yields, since the buybacks will be funded by issuing T-bills (which have maturities of less than one year). 30-year yields fell about 6bps immediately after the announcement. 

The Treasury buys bonds on a weekly basis. Between now and November there are seven nominated dates where they will be buying 10-to-20-year and 20-30-year bonds.

It has previously been buying about US$2bn each time, so this equates to something in the order of an additional US$14bn buying of long-dated bonds. 

This represents about 0.5% of the stock in that maturity bucket.

Bessent’s framing for the surprise announcement is broadly as follows: 

1. The bond market was mispricing long-dated US bonds given thin August liquidity with a lot of corporate (AI) issuance and “many underlying factors” that the market is not looking at. He noted a lot of the corporate issuance was almost yield-agnostic given the build-out of AI and high returns that companies are expecting. Most commentators agree liquidity is thin in August. However, the unusual environment of the private sector crowding out the public in terms of issuance – and the resulting higher yields – is a feature we may well see more of, rather than less, in the medium term.
   
   
2. The enhanced buyback operation had a “signalling” component intended to show the administration thinks yields do not reflect fundamentals. The signal is clear and may prompt a reconsideration of pricing, but only if investors buy the arguments being made.
   
   
3. There is scope to upsize operations if appropriate or draw on other undisclosed elements of a “big toolkit” (or both). Escalation is available but also carries the risk that it may look like the Treasury is trying to defend a particular yield level.
   
   
4. Investors have “bad information” – including misunderstanding of and misinformation around fiscal dynamics – and there is speculation about “asymmetric information” the government may possess. It seems a stretch to think bond investors don’t have a pretty good insight into fiscal dynamics – and if information really was poor, this could imply higher term premia.
   
   
5. There is a “very good chance” the US has hit peak deficit, with consolidation in 2026 and one-time tariff rebates that will not be issued in 2027, and there will be a new focus on fiscal consolidation. In our view the market is sceptical on the prospects of material deficit reduction, including through another DOGE-like effort to eliminate waste.
   
   
6. Treasury and the Fed will “work together” to offset any adjustment in Fed balance sheet policy. Warsh has previously indicated he is uncomfortable with the duration of Fed holdings (versus the market duration), so Bessent is indicating issuance to offset a Warsh-driven maturity curtailment.
   
   
7. The US continues to have a “strong-dollar policy” and the dollar is only back down to where it was a couple of months ago, which should not make any material difference to inflation. The risk is policy errors could create a scenario that may see a much bigger decline in the dollar that could, in conjunction with concerns around financial repression, raise inflation and inflation expectations.
   

US policy and macro

The July meeting minutes from the rate-setting Federal Open Market Committee were more dovish than expected and may suggest Warsh was not under as much pressure as thought.

Notwithstanding this interpretation of the minutes, economic data since the July meeting (GDP, retail sales, CPI, PPI and payrolls) have all surprised to the downside, taking out some of the impetus to raise rates near term.

Key observations from the minutes included:

Current interest rates:

• While “most” participants supported the decision to maintain the target range for the fed funds rate at 3.50-3.75%, “several” favoured a rate hike at the July meeting. 
• “Some” judged that financial conditions “might not currently be sufficiently restrictive” to return inflation to 2%.

Interest rate outlook:

• “Many” participants judged that rate hikes would likely be necessary if inflation did not decline. 
• “Various” participants noted that financial conditions had tightened over the intermeeting period between the June and July FOMC meetings, partly reflecting “market expectations that the Committee would adopt a more restrictive policy stance before long”.

Inflation outlook:

• While participants judged that inflation risks were skewed to the upside, “most” participants expected declining inflation over the rest of the year “as the effects of tariffs and earlier energy price increases wane”. 
• “Several” saw tariff passthrough to prices as “largely complete” and upward pressure from AI-related cost increases so far “limited to select categories”.
• “Many” noted “a protracted conflict” in the Middle East could boost inflation and that several years of above-target inflation “could begin to affect inflation expectations”.

Labour market:

• Regarded as stable with “some” participants noting nominal wage growth was “moderate and consistent with inflation moving toward 2 per cent”. 
• Economic activity is growing at a “solid” pace, supported by strong consumer spending and business investment, concentrated in AI-related spending. 
• “Most” participants noted that higher equity prices had supported consumer spending, especially among higher-income households.

Meeting schedule: 

• Chairman Warsh “observed that six scheduled meetings per year, held roughly every two months, would allow more information to accumulate between meetings and provide policymakers and the staff more time to consider strategic monetary policy moves”. 
• The minutes noted that Chairman Warsh had solicited feedback from committee members on the idea, but that no decisions were made and any change would not affect the schedule over the rest of 2026. 

Australia policy & macro 

The number of employed people fell 15.9k in July, versus consensus expectations of +13.5k.

The unemployment rate rose to 4.5% consensus, which is in-line with the RBA’s year-end forecast. Consensus was at 4.4% for July.

The participation rate at 66.85% was a touch below consensus (66.9%).

Hours worked were down 0.6% month/month and +0.2% year/year.

Overall, the data was on the soft side and provided further evidence that the labour market is weakening slowly. 

It moved the chance of a rate hike by year end from 68% to 62%.

Markets

In the US, it is worth noting that Walmart was down 9% despite a modest beat-and-raise at it 2Q27 result.

The CFO noted that higher fuel prices are weighing on lower-income shoppers and as fuel prices climbed above US$4/gallon during the quarter there appeared to be “a psychological impact” that led to visible trade-offs by customers, with June being “a little more obvious” in terms of this.

The Australian market was led by healthcare (+9.1%) and resources (+5.6%). Consumer discretionary (-6.2%) and financials (-4.4%) were weaker, with banks (-4.8%) weighing on the latter. 

It has been interesting to note that the bank sector has moved from “overbought” to “oversold” territory according to the relative strength index (RSI) indicator, all within August. 

This continues this year’s trend of the sector’s relatively rapid oscillation between the two extremes.

IMPORTANT INFORMATION: This document has been prepared by Enhance Financial Partners, ABN 45 146 707 173 AFSL 515518, based on our understanding of the relevant legislation at the time of writing. While every care has been taken, Enhance Financial Partners makes no representations as to the accuracy or completeness of the contents. The information is of a general nature only and has been prepared without consideration of your individual objectives, financial situation or needs. Before making any decisions, you should consider the appropriateness for your personal investment objectives, financial situation or individual needs. We recommend you see a financial adviser, registered tax agent or legal adviser before making any decisions based on this information.