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The Ledger Letter
Finance Studio Advisors
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The Treasury Buys Wednesday. The Fed Leans the Other Way.
US markets are closed today, so Friday’s close still stands. The two-year finished at 4.37%, a 52-week high. The thirty-year sat unchanged at 5.24%. On Wednesday the Treasury doubles its buying of long-dated bonds. On September 16 the Fed decides. Two arms of one government, working opposite ends of the same curve.
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The Breakdown
Today’s disagreement: the Treasury adds demand at the long end while the Fed’s lean pushes the short end higher.
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The Holiday Ledger
No session prices today. Friday’s tape still stands. The two-year sat at 4.37% after a four basis point jump, a 52-week high. The thirty-year closed unchanged at 5.24%. The S&P finished 7,718, off 0.4%. The Russell 2000 closed higher at 2,976.
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Wednesday’s Bid
On Wednesday, September 9, the Treasury begins buying long-dated bonds at double its earlier pace. That is real demand arriving at the far end of the curve. Buybacks lift bond prices, and prices up means yields down.
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Friday’s Verdict
August CPI lands Friday, September 11, at 8:30 ET, five days before the decision. The market’s lean sits near 57 to 60 hike against 40 to 43 hold. That is a lean, priced by traders rather than settled by the Fed.
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Friday, by the Numbers
| 30-Year Treasury | 5.24% (unchanged) |
| 2-Year Treasury | 4.37% (+4bp): 52-week high |
| Dollar Index | 99.17 |
| S&P 500 | 7,718 (−0.4%) |
| Russell 2000 | 2,976 (+0.3%) |
Friday, Sept. 4 close. US markets are closed today for Labor Day, so there is no new session to price. Sources: BLS Employment Situation; LSEG.
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Two Hands on the Same Curve
What Friday Left Standing
Labor Day gives the tape a rest, and Friday’s print stands until Tuesday. That print said one thing clearly. The two-year gapped four basis points to 4.37%, per LSEG, and finished at a 52-week high. August payrolls had come in at 162,000 against a 55,000 consensus. The short end read that as a Fed with cover to move. The thirty-year did nothing at all, holding 5.24%. Equities gave back four tenths of a percent while small caps closed higher.
What the Treasury Does Wednesday
Here is the piece the weekend coverage skipped. On Wednesday the Treasury doubles the size of its long-bond buybacks. The mechanics are plain. The government steps in and buys its own long-dated debt. That takes supply off the market and puts a bid under the price. Prices up means yields down. That is easing at the thirty-year end, arriving in the same week the Fed’s lean points the other way. A hike on September 16 would lift the target range from 3.50 to 3.75 percent up to 3.75 to 4.00 percent. One hand loosens the long end. The other tightens the short one.
Why Both Hands Cannot Win
A curve pushed from both ends has to give somewhere. If the buybacks dominate, the thirty-year holds 5.24% or drifts lower while the two-year climbs. The curve flattens further into the meeting, and flat curves squeeze the banks first. If the hike lean dominates, the whole structure lifts. The buyback bid gets swamped by sellers who want no duration at any price. The first outcome pays anyone short the front end. The second one costs every holder of a thirty-year bought this summer.
The Level to Watch Friday at 8:30
August CPI prints Friday, September 11, at 8:30 ET. Watch core, month over month. A reading of 0.3% or higher hardens the lean and the two-year runs. At 0.2% nothing changes and the coin flip holds into the decision. At 0.1% or less the hike case comes apart, and the buybacks get the curve to themselves. The line is the thirty-year at 5.24%. Hold it through Wednesday and the Treasury is winning. Break above it and the Fed is.
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One arm of Washington will be buying long bonds on Wednesday. Another may be raising rates on the 16th.
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