US Treasury Repurchase Sends Yields Soaring Amid Expectations of Rate Hikes

The US Treasury increased its repurchase of long-term bonds from $4 billion to $6 billion, but this move led to a rise in yields. The 10-year US Treasury yield reached 4.85%, a new high since November 2023.

Several factors contributed to the sell-off in US bonds. Norway's sovereign wealth fund, which holds about $215 billion in US bonds, is reducing its allocation to government bonds from 34.1% to 21.9%. The Bank of Japan's expected rate hike has also led to a decrease in Japanese holdings of US bonds.

The demand side for US bonds is collapsing, while the supply side is still expanding. The federal deficit for fiscal year 2026 is expected to be around $1.9 trillion to $2.1 trillion.