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Wall Street strategists are pouring cold water on Washington’s latest attempt to calm the Treasury market. Goldman Sachs, Wells Fargo and several other major firms say expanded government bond buybacks are unlikely to reverse the sharp rise in long term interest rates.

Yields on 10 year and 30 year Treasury securities briefly declined after the Treasury Department announced additional purchases on Wednesday. That relief quickly faded, however, with rates climbing again late in the week as investors returned their attention to inflation, federal borrowing and the expanding budget deficit.

Treasury Secretary Scott Bessent insisted that his department has a “big toolkit” available to manage market stress. CNBC also reported that officials could use part of the Treasury’s cash reserves to purchase securities, adding to speculation that Washington may become more aggressive.

The market’s response suggests that tactical purchases cannot erase concerns created by persistent deficits and enormous debt issuance. Investors increasingly want evidence of fiscal restraint, softer inflation or weaker economic growth before committing heavily to longer maturity government bonds.

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Goldman strategists George Cole and William Marshall argued that the purchases do not confront the real forces driving volatility. They said the transactions are “unlikely to meaningfully reset rate levels even if scaled up.”

According to Goldman, several factors are keeping longer maturity yields elevated, including economic resilience, changing expectations for Federal Reserve policy, fiscal pressure, energy risks and optimism surrounding artificial intelligence investment. Greater bill issuance may also be needed to finance the purchases, merely shifting the Treasury’s funding burden rather than removing it.

Wells Fargo reached a similar judgment in an August 21 research note. Strategists led by Erik Nelson said “another catalyst is needed” before longer maturity yields can move meaningfully lower.

Possible catalysts include slower economic growth, cooler inflation, greater clarity regarding Federal Reserve policy and genuine fiscal consolidation. Wells also pointed to a potential slowdown in investment grade corporate issuance, which could reduce competition for investor capital.

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Strategists at Societe Generale, Deutsche Bank and Scotiabank expect the yield curve to continue steepening. In that scenario, yields on longer maturity securities rise further above short term rates, producing precisely the result Treasury officials are trying to prevent.

Scotiabank analysts Boris Sender and Rachel Zheng said the increase in longer maturity yields is “justified by fundamentals.” They expect continued pressure from heavy issuance and strong nominal growth, even if subdued consumer inflation reduces the likelihood of additional Federal Reserve rate increases.

Societe Generale said larger purchases could “help improve liquidity and support market functioning.” Still, its strategists warned that purchases alone are unlikely to change the broader economic forces pushing rates upward without a material shift in the outlook.

Deutsche Bank viewed the announcement as evidence of a more activist Treasury Department willing to use communication and market tools creatively. Yet the bank still expects a steeper curve and higher longer maturity yields after the brief rally generated by the intervention.

Not every firm is entirely pessimistic about the program. Citi sees an opportunity in 20 year Treasury securities, arguing that attractive valuations, possible pension demand and the prospect of softer economic data could provide support.

Citi also challenged fears that the far end of the curve has become completely detached from policy expectations. Its strategists said, “The narrative of an unanchored backend is overplayed here” and argued that “a dovish FOMC, not a hawkish one, could drive real money demand back into USTs after Labor Day.”

Even Citi acknowledged that a more restrictive Federal Reserve could damage that trade. Tighter monetary policy would not necessarily produce lower or more stable longer maturity yields, especially if investors continue demanding additional compensation for inflation and fiscal risk.

Upcoming inflation data and Treasury auctions could intensify market volatility. Core personal consumption expenditure inflation is expected to remain relatively benign, although still above the Federal Reserve’s target, while auctions of five year and seven year notes will test investor appetite.

The deeper problem is that government purchases cannot permanently disguise the supply created by relentless federal borrowing. Unless Washington addresses spending, inflation and the trajectory of the national debt, buybacks may improve trading conditions temporarily while leaving the fundamental pressure on yields firmly in place.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.