Goldman Sachs and Wells Fargo analysts say the U.S. Treasury buyback program will not materially lower long-term Treasury yields, leaving 10-year and 30-year rates under pressure and weighing on long-duration bond ETFs.
Goldman Sachs and Wells Fargo specifically said Treasury buybacks are unlikely to cut long-term rates. For US10Y, the benchmark 10-year Treasury yield, that removes a potential catalyst for lower yields, keeping upward pressure on the yield.
Goldman Sachs and Wells Fargo say no. They argue the buyback program is unlikely to reduce long-term rates, so the 10-year yield faces limited downside from this policy.
With buybacks seen as ineffective on long rates, US10Y is likely to stay elevated or face upward pressure in the mid-term.
TLT tracks long-duration Treasuries, which are inversely sensitive to yield moves. With Goldman and Wells saying Treasury buybacks won't cut long rates, long-end yields stay elevated, limiting price gains for TLT and keeping downside risk alive.
TLT holds long-duration Treasuries. If buybacks don't lower long rates, bond prices stay weak, keeping TLT under pressure.
Goldman and Wells suggest buybacks won't cut long rates, so the anticipated catalyst for a TLT rally is unlikely to materialize.
Goldman Sachs Group Inc. and Wells Fargo & Co. analysts said the U.S. Treasury's buyback program is unlikely to reduce long-term borrowing costs, casting doubt on the program's effectiveness. The banks' assessment pushes back against hopes that buybacks would lower 10-year and 30-year Treasury yields. With long-end rates expected to remain elevated, long-duration bonds and bond ETFs face continued pressure.
Both banks said the Treasury's buyback program is unlikely to reduce long-term interest rates, casting doubt on its effectiveness in lowering borrowing costs.
Buybacks could reduce the supply of long-dated debt, potentially lowering yields, but Goldman and Wells argue the program won't achieve that.
Long-term bond prices may stay under pressure if yields do not decline, keeping duration risk elevated.