Bezent's “long-term debt relief” sparked a rebound in the global bond market, but institutions warned that the rise may be difficult to sustain

The Zhitong Finance App learned that US Treasury Secretary Scott Bessent (Scott Bessent) plans to expand the scale of long-term treasury bond repurchases. Although this move triggered a rebound in global bonds on Wednesday, many analysts warned that due to continued market concerns about fiscal difficulties and the stickiness of global inflation, this rise may be difficult to sustain.

Agencies such as Franklin Templeton (Franklin Templeton), Australia's Barrenjoey Markets Pty, and Nomura Holdings Inc. (Nomura Holdings Inc.) pointed out that since many governments around the world also face pressure from debt backlogs and rising budget deficits, the positive spillover effects of the Bezent plan on other bond markets may be quite limited.

Driven by the continued decline in 30-year and 10-year US bond yields from decades-long highs, the overall government bond market in the Asia-Pacific region (from Japan to Australia) strengthened on Thursday, following the rise in the European bond market on Wednesday — although European gains gradually subsided on Thursday.

This round of linked markets stems from the US Treasury Department's announcement that it will at least double the scale of bond repurchases. This rare intervention also reflects Washington's growing unease over the continued high cost of borrowing. However, analysts warned that due to investors' deep-seated concerns about huge fiscal deficits, inflation driven by oil prices, and broader supply pressure brought about by the AI industry's financing frenzy, the Bezent plan may only be a short-term antidote.

“This will provide a circuit breaker for the global sell-off of long-term bonds,” said Andrew Lilley (Andrew Lilley), chief interest rate strategist at Sydney-based Barrenjoey Markets Pty. But “this move alone is not enough to stop the rise in yield.”

Since the rebound in US bonds on Wednesday, the yield on Japan's 30-year treasury bonds once fell by nearly 9 basis points to around 4%, the biggest one-day decline since July 14. Australia's comparable sovereign bond yield fell 4 basis points, the biggest drop in two weeks.

However, some investors aren't buying it. Franklin Tamberton maintains a low position on long-term bonds, believing that Bezent's move is unlikely to trigger a more sustained rebound. As of Thursday, the US 30-year Treasury yield had once again rebounded 4 basis points to 5.23%.

“Currently, multiple forces are simultaneously driving up yields and steeper curves,” said Andrew Canobi (Andrew Canobi), director of fixed income at Franklin Tamberton. Major developed markets are facing fiscal pressure and stubborn inflation. “As long as these forces dominate, I can't see that long-term bonds can get much buying support.”

In the European market, the yield on German 30-year treasury bonds was basically flat at 3.76% on Thursday, close to the highest level since 2011 — a high that was already touched before the US Treasury's announcement. The yield on UK 30-year treasury bonds rose 2 basis points to 5.80%, after closing 5 basis points lower in the previous trading day.

“After the buyback announcement, interest rates on the British pound leveled off sharply, but there were no corresponding policy signals in the UK, and domestic fiscal risks did not disappear,” said Evelyne Gomez-Liechtenstein (Evelyne Gomez-Liechtenstein), a multi-asset strategist at Mizuho International Plc (Mizuho International Plc). “We regard yesterday's long-term rebound as a tactical closing of positions rather than the beginning of a continued flat bull market.”

Alex Everett (Alex Everett), who manages the Aberdeen Investments (Aberdeen Investments) European Government Bond Fund, pointed out that the performance of Eurobonds may lag behind US Treasury bonds.

“The intervention of the US Treasury is a strong sign that Bezent and others are willing to cap the long-term yield on US bonds, but this support has not been extended to Europe and the UK,” he said. “Based on this, it can be expected that these markets will experience a certain degree of relative weakness.”

Of course, the latest rebound may also reflect an improvement in some investors' preferences for major economies' bonds with healthier fiscal conditions.

That being said, while governments and central banks do have powerful tools to influence markets, advanced economies face deep-seated long-term fiscal risks, meaning investors are likely to continue testing the bottom line of these authorities.

“Trying to confront those who can set the rules is always dangerous,” said Andrew Ticehurst (Andrew Ticehurst), senior interest rate strategist at Nomura Holdings based in Sydney. “But the weak underlying fundamentals are substantial and increasingly obvious.”