US Treasury bets on soft inflation hide reversal risks as long-end interventions intensify term premium games

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智通财经2026/08/26 11:51

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The current pricing in the US Treasury bond market implies that July’s core PCE month-on-month increase will be only about 0.18%, corresponding to a moderate rise of 0.2% after rounding. However, institutions believe the risks are clearly skewed to the upside. The re-acceleration in core goods prices, mixed performance in PPI subcomponents, as well as cost pressures from energy transport and tariffs could all push the actual reading to 0.25% or even higher.
If the core PCE unexpectedly posts a 0.3% month-on-month increase, it would directly push the year-on-year growth rate above the market-expected 3.3%. In the context of inflation already well above the 2% target, this result could upend the bond market’s current dovish pricing and boost the probability of a rate hike in September back above 70%.
The Treasury's recent long-term bond buyback operations have indeed weakened bearish forces in the short term. However, this is evolving from routine liquidity management into direct intervention in term pricing, which directly conflicts with the Fed Chair’s stance of letting yields freely transmit economic signals.
Expanding the scale of long-term buybacks to over $400 million per operation may temporarily suppress yields, but the Treasury cannot permanently lower funding costs by relying on short-term borrowing. If the market believes debt management is being used for artificial curve shaping ahead of the midterm elections, term premiums will face sustained upward pressure.
In the crude oil market, although positive signals from Iran have caused oil prices to continue falling, declining global inventories and shrinking spare capacity suggest that prices below $80 are more likely to present tactical buying opportunities. The risk of Hormuz negotiations being delayed until 2027 makes it difficult to reverse the structurally tight situation in the physical market. In terms of US Treasury strategy, we maintain a neutral to slightly flat view; selling into rebounds in the long end remains the main approach, with the 10-year yield expected to trade in the 4.62% to 4.70% range.

Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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US Treasury bets on soft inflation hide reversal risks as long-end interventions intensify term premium games

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