Treasury Steps In to Stabilize Bond Market with Double Purchase Plan
US Treasury's plan to at least double purchases of long-term US government bonds has triggered a rally in the bond market, causing 10-year yields to fall. According to UBS' chief economist Paul Donovan, this move aims to offset the unintended consequences on the bond market due to other policies like the Gulf war and tariffs.
The higher yields worsen the US affordability crisis and debt service costs, making them a political focus, says Donovan. He notes that the narrative around the bond market may be biased by commentators' aversion to these administration policies.
The US government's debt as a share of GDP is below record levels, and debt as a share of private wealth is low, according to Donovan. However, he also mentions that Federal Reserve policy uncertainty may add a financial market risk premium.