Daily Europe

21 August 2026, 04:30 UTC Chief Investment Office GWM Investment Research

The Treasury’s rare intervention buys time, not a solution UBS House View - Daily Europe Mark Haefele, Global Wealth Management Chief Investment Officer, UBS Switzerland AG Jon Gordon, Strategist, UBS AG Hong Kong Branch Frederick Mellors, Strategist, UBS Switzerland AG Leslie Falconio, Head of Taxable Fixed Income Strategy, CIO Americas, UBS Financial Services Inc. (UBS FS) Andrew Dubinsky, US Economist, UBS Financial Services Inc. (UBS FS) Kurt Reiman, Head of Fixed Income, Americas, UBS Financial Services Inc. (UBS FS)

From the studio What to watch: 21 August: Podcast: Signal over Noise with Ulrike Hoffmann-Burchardi, on Apple • UK retail sales for July or Spotify (6 mins) • Eurozone business activity readings for August Video: Market Playbook | James Cheo on fixed income (5 mins) Video: The AI Show | China tech earnings update and what's next (3 • US business activity readings for August mins) • Eurozone consumer confidence reading for August Thought of the day US Treasury Secretary Scott Bessent said on Thursday he may further increase • Spain overnight stays for July the government's repurchases of Treasuries, after his department surprised the market by doubling the size of its buyback operations earlier this week. He added that the administration will be unveiling a new fiscal initiative to address the highest borrowing costs in years. But an earlier rally in Treasuries faded, with the 30-year yield rising 5 basis points on Thursday. The S&P 500 fell 0.9%.

While the Treasury's actions may have helped cap the surge in yields this week, we think investors should avoid overinterpreting the longer-term implications:

The Fed path still depends on inflation, not intervention. While the Treasury announcement overshadowed the July Fed minutes, the minutes reinforced that inflation remains policymakers' primary concern. Several officials favored a rate increase, while many believed further tightening could be necessary if inflation does not continue to improve. At the same time, most participants expected inflation pressures to moderate over the remainder of the year. Importantly, the minutes predated the softer inflation and labor-market data released this month. In our view, the latest data remain consistent with the Fed staying on hold this year, albeit with a data-dependent stance.

History shows bond-market interventions have limits. Japan and the UK offer useful lessons. Both countries have used bond purchases, buybacks, or issuance adjustments to influence long-end yields. While such measures can reduce volatility and provide temporary relief, they have not permanently lowered borrowing costs when fiscal, inflation, or supply dynamics remained

This report has been prepared by UBS Switzerland AG, UBS AG Hong Kong Branch, UBS Financial Services Inc. (UBS FS). Please see important disclaimers and disclosures at the end of the document.

unfavorable. We believe the same principle applies in the US. The Treasury's buybacks may discourage aggressive curve-steepening trades and reduce near-term market stress, but they do not address the forces supporting higher term premia, including persistent deficits, elevated capital demand, and a shift in Treasury ownership toward more price-sensitive private investors. In addition, the temporary nature of the program (which runs from 9 September through 4 November) reinforces the view that this is a tactical measure rather than a permanent solution.

While unusual, this is not quantitative easing. Unlike QE via the Fed, the Treasury cannot create money to fund asset purchases. Any buybacks must be financed elsewhere, most likely through increased bill issuance or adjustments to other parts of its funding program. In effect, the operation reshapes the maturity profile of debt held by investors rather than reducing the amount of debt markets must absorb. It neither removes the government's financing needs nor resolves concerns about Treasury supply.

So we take the Treasury's intervention as further evidence that policymakers are increasingly focused on maintaining stability at the long end of the curve and are uncomfortable…