Treasury yields at 19-year highs, Fed minutes showing a hawkish split on that 9-to-3 hold, and Bitcoin surging past $70,000 after Trump pushed Congress on crypto legislation. It has been a busy week here on the markets. Joining me to break it all down is Michael Reinking, Senior Market Strategist at the New York Stock Exchange. Michael, thanks for joining us.
Johnny, thanks for having me. A lot to discuss today.
The 30-year yield hit a 19-year high this week before the Treasury stepped in with bigger buybacks. Is this move about inflation fears or is it really a supply and demand story?
There are a lot of moving parts. You have competition on the demand side with increasing issuance coming from the AI sector — projections suggest about $500 billion of AI-related issuance this year, compared to about $750 billion of issuance from the Treasury for 10 and 30-year notes. So there is a big wave of supply coming to market. You have inflation concerns. And the investor base has shifted away from governments toward private investment, which is demanding more return for duration — putting upside pressure on Treasury yields. Yesterday the Treasury doubled the size of its buyback to a minimum of $4 billion for longer tenured Treasuries — 10 to 30 years. That came on the heels of the currency intervention allowing Japan to pledge treasuries rather than having to sell them in the market — effectively taking that supply away. What you are seeing is the Treasury very keenly watching long-dated yields. And what you saw yesterday was the return of the debasement trade — the long end moved lower, the dollar weakened, and there was significant strength in precious metals and the crypto market. Bitcoin broke back above its 200-day moving average for the first time going back to November. There is an old saying in markets — never short a dull market. You are seeing the other side of that in crypto today.
Do you think the buyback is enough to cap yields or just a patch?
At this point, it is probably more of the latter — but it is the signal. They have not actually deployed anything in those buybacks yet. It is that signal that they are paying attention and watching. Treasury yields at the long end are already giving back about half of what they did yesterday. We will see if markets come in to test that. And if you think about AI and the long end — we are in a global arms race, and all of that lending needed for AI infrastructure is tied to the long end of the yield curve. The administration is very focused on continuing to lead in AI. So it also plays back to that whole theme.
Where does the market stand on the probability of a September Fed hike?
The Fed minutes are dated — three weeks ago. Since then we have had some more dovish data — a weaker jobs report, inflation coming in slightly better than expected, and weaker retail sales. All three of those reports have helped markets reduce the probability of a hike in September. We have gone from roughly a two-in-three chance to about a 30% probability. If you go through the details of the minutes, the dissenters are looking for a hike or two — not necessarily a prolonged hiking cycle. Just removing some of the safety cuts from the end of the last cycle. And officials are suggesting they believe the worst of the tariff inflation is behind them, expecting improvement in the back half. But going back to what just happened yesterday — that debasement trade is an inflationary impulse. And the geopolitical situation in both Iran and Ukraine is going to add to the inflation backdrop. We will hear from Chair Warsh next Friday, which will be very important.
Thanks so much, Mike. It has definitely been a busy week. We will see what next week brings.
Absolutely. See you again soon.
