Treasury’s Buyback Plan Unsettles Investors

For the week ending 21 August 2026

As of midday Friday, global equities were modestly lower on the week, with bond yields approaching the highs of recent ranges. In the US, the yield on the 10-year US Treasury note firmed to 4.71% from 4.65% last Friday, and West Texas Intermediate crude oil rose $4 a barrel to $86.85. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), fell to 17.5 from 18 a week ago.

MACRO NEWS

US Treasury leans against rate rise

The US Treasury Department announced Wednesday that it would “at least double” the size of its liquidity-support buyback operations for longer-dated nominal coupon securities, raising the maximum to at least $4 billion per operation from $2 billion in both the 10- to 20-year and 20- to 30-year sectors. The buyback program is designed to remove less-liquid, off-the-run securities from the market and concentrate trading in more liquid issues. It should act, in effect, as a short-term “twist,” pulling long-dated paper out of the market and replacing it with shorter-dated issuance. With investors heavily short long-dated Treasuries, the announcement sparked a rally on Wednesday, sending rates lower and the dollar weaker. Treasuries later retraced much of the move on Thursday, however, as doubts swirled over the program’s effectiveness.

Treasury Secretary Scott Bessent said Thursday that the buybacks would in fact exceed the $4 billion cited in Wednesday’s announcement and said the US will increase its focus on fiscal consolidation, with further details in coming days. High bond yields aren’t justified by fundamentals, Bessent argued, but investors remained unconvinced. The move also complicates Fed Chairman Kevin Warsh’s intention to use market yields as an unfiltered signal to guide Fed policy.

Meanwhile, the US national debt exceeded the $40 trillion milestone this week, at a time when US investment-grade corporate bond issuance continues to break records as hyperscalers rush to fund the AI infrastructure buildout. Firmer oil prices added to the mix in keeping yields elevated, as did ongoing uncertainty over the Fed’s inflation approach.

Trump warns Iran of “economic D-Day”

Having shifted the US’s strategy to one of economic rather than military pressure, President Donald Trump warned this week that the US aims to cut off Iran’s economic lifelines and force the country’s leaders back to the negotiating table. Trump said that oil smuggling, swap lines, cash transfers, exchange houses, ship registries, and front companies that aid Iran must stop immediately and called on allies to support efforts to isolate Iran. The first manifestation of this new strategy was Tuesday’s announcement by the United Arab Emirates that it has suspended trade and financial transactions with Iran.

The since-ignored 60-day memorandum of understanding between the US and Iran expired on Monday, with Trump saying no talks are currently underway. Secretary Bessent is scheduled to hold a press conference on August 24 outlining additional economic steps against Iran.

Building on recent accounts, Axios reports that the US military has established a shipping corridor in and out of the Strait of Hormuz to transport millions of barrels of oil each day. Under the operation, which has been underway for the last several weeks, 15–20 tankers have entered and exited the strait each night through a southern channel along the coast of Oman. About 10 million barrels of oil per day (roughly half the pre-war volume) are being transported out of the strait and injected into the global energy market, officials said.

US and Canada reach trade deal

Late Tuesday, President Trump paused 50% tariffs on certain Canadian imports just before they were set to take effect at midnight, saying the two countries had reached a trade agreement. Canadian officials said they were working to finalize the text, and US Trade Representative Jamieson Greer voiced confidence that the deal will strengthen the North American economy. According to Bloomberg, the US will halve tariffs on Canadian steel and aluminum to 25% from 50%, while auto tariffs could fall to 15% from 25%.

QUICK HITS

Global preliminary PMIs firmed, led by a big uptick in the US services index.

Minutes from the July FOMC meeting, released this week, were marginally less hawkish than feared but were also likely stale given how economic data has softened since the meeting took place. Many participants said a hike would likely be needed if inflation failed to subside, several judged that tariff passthrough was likely complete, and several others favored a hike at the July meeting itself. Participants viewed inflation risks as skewed to the upside, and many warned that a protracted Middle East conflict could boost inflation, though most expected inflation to step down over the remainder of the year.

China and Switzerland agree on a free-trade pact that will make trade between the two countries almost duty-free.

Nine top tech companies had roughly $3 trillion of off-balance-sheet commitments, mostly related to AI, according to a Wall Street Journal analysis of footnotes in recent securities filings. Those obligations are growing faster than traditional capex, which totaled about $600 billion over the past year, and were about triple what the companies owe under their outstanding leases and long-term borrowings.

Bank of America said its August Global Fund Manager Survey recorded the third most bullish reading of investor sentiment since 2022. It noted that investors’ cash level had ticked down another 0.1% to 3.5% and their global equity allocation surged to its highest level since late 2021, with a net 56% overweight.

Frustrated by South Korea’s lack of support in reopening the Strait or Hormuz, President Trump announced that the US will scale back annual joint military exercises to 5 days from 11. Trump also said he will meet with North Korean leader Kim Jung Un this year.

Yemen’s Iranian-allied Houthi rebels are escalating attacks along the country’s Red Sea coast, shutting down operations at a strategic seaport and pushing closer to the Bab al-Mandeb Strait, an important global shipping chokepoint.

China announced on Friday that it is introducing new measures to drive borrowing by businesses and consumers as economic growth falls below target.

Frontier AI model maker Anthropic said Thursday it is prepared to file for an IPO before the end of August. The company said it expects to match or top the size of the recent SpaceX offering.

The unemployment rate in the United Kingdom held steady in June at 4.9%. Retail sales fell back, declining 0.5% month over month.

US industrial production rose 0.2% in July.

Japan GDP grew more slowly than expected in Q2: 1.1% versus expectations of 2% and down from 1.9% in the previous quarter.

China retail sales rose 0.6% year over year in July, well below forecast. Industrial production missed the mark, too, rising 4.5% from a year ago versus expectations for a 5% rise

US July pending home sales fell 2.3% month over month and 2.5% year over year.

Analysts at Goldman Sachs estimate that AI has increased the US unemployment rate by 0.1%, with call center jobs the most impacted.

This week, armed gunmen seized an oil tanker off Yemen and redirected it toward Somalia.

The yield on the 10-year Japanese government bond reached 2.96% on Tuesday, the highest level since 1996.

Canadian June retail sales rose 0.6% from the month before, beating forecasts.

THE WEEK AHEAD

Monday: No major releases
Tuesday: US new home sales
Wednesday: US core PCE, Q2 GDP revision, durable goods orders
Thursday: US trade balance
Friday: Japan unemployment; Canada GDP; Warsh likely to speak at Jackson Hole