US Treasury Intervenes as Global Bond Yields Surge

Global bond yields surged to nearly two-decade highs on Tuesday, driven by a combination of massive global debt and an inflationary shock from renewed conflict between the United States and Iran. US 10-year yields rose to 4.79% and 30-year Treasury yields hit 5.25% after projectiles struck oil tankers in the Strait of Hormuz, pushing oil prices above $92 a barrel. In response, the US blockaded Iranian ports while Iran imposed a blockade on the Strait of Hormuz.

Scott Bessent, the US Treasury Secretary, announced that the US Treasury would purchase at least $4 billion in longer-duration government bonds and buy back more debt to cap borrowing costs. Bessent argued that economic growth, specifically from the artificial intelligence boom, is the only way to manage global debt levels, which the Institute of International Finance estimates have surpassed $350 trillion.

To prevent a mass exit of Japanese capital from the US Treasuries market, the US Treasury and the Bank of Japan intervened to support the yen. Bessent subsequently demanded that Japan raise interest rates and reduce its $2 trillion spending plan as a condition for continued US assistance in stabilizing the currency. Meanwhile, Federal Reserve Chair Kevin Warsh and official Michael S. Barr signaled that the central bank may act decisively to raise interest rates if inflation, which reached 3.4% in July, does not cool.