Market Wrap US-Europe 19 August: Treasury Buybacks Push 30 Year Yield Down 9 Basis Points

By The Edge Research Team

Wall Street snapped its three-session slide on Wednesday after the US Treasury Department said it would at least double the size of its government debt repurchases, aimed at the 10 to 30 year part of the market, per CNBC. The S&P 500 rose 0.21 percent to 7,707.98, the Nasdaq Composite 0.16 percent to 26,331.09 and the Dow Jones Industrial Average 0.22 percent to 53,463.05, per CNBC, while the official Treasury curve delivered the day’s real move: the 30-year yield fell 9 basis points to 5.19 percent and the 10-year 6 basis points to 4.65 percent, our calculation from the official rows. Moderna soared 177 percent and Merck jumped 12 percent after their experimental cancer vaccine met its goals in a late-stage melanoma trial, per CNBC.

The US session was strongest at the open and faded into the close. The Dow had been up more than 360 points, or 0.7 percent, at its session high, with the S&P 500 also up 0.7 percent at its peak, before the rally lost ground through the afternoon, per CNBC. The Russell 2000 led the closes, up 0.50 percent at 3,032.94, per CNBC, consistent with a rates-led broadening in equities, our reading, and rate-sensitive names gained, with Lowe’s and Home Depot both up around 2 percent, per CNBC. The Cboe Volatility Index fell 6.00 percent to 14.89 at its 16:15 New York final print, per Cboe, unwinding two days of increases. The single-stock story of the day sat in health care for a second session: Moderna closed 177 percent higher and Merck 12 percent higher after their mRNA-based shot, used with Merck’s immunotherapy, met key goals in a trial of more than 1,100 melanoma patients, per CNBC.

The rates market carried the session. The Treasury’s announcement that it would at least double its longer-dated debt repurchases, covering the 10-year to 30-year sectors including the 20-year, sent long yields down hard, per CNBC. The Treasury’s own release frames the move as liquidity support: the existing buyback operations in the 10 to 20 year and 20 to 30 year sectors rise from a maximum of 2 billion dollars to at least 4 billion dollars per operation from 9 September, per the Treasury Department, and the official curve confirmed the move at the close: the par yield curve for 19 August puts the 30-year at 5.19 percent, down 9 basis points from Tuesday, the 20-year at 5.17 percent, down 11 basis points, the 10-year at 4.65 percent, down 6 basis points, and the 2-year unchanged at 4.19 percent, our calculation from the Treasury’s published 19 and 18 August rows. The 2-year to 30-year spread narrowed from 109 to 100 basis points, our calculation, a sharp bull flattening from the long end a day after the 30-year had touched a 19-year high above 5.33 percent intraday, per CNBC. Federal Reserve minutes released in the afternoon showed many participants assessed that policy tightening would likely be necessary if inflation did not decline, per CNBC, and the market bought the long end anyway, our reading.

In Europe, the session ended mixed and London extended its run. The Euro STOXX 50 fell 0.37 percent to 6,444.46, Germany’s DAX 0.14 percent to 26,091.33 and France’s CAC 40 0.09 percent to 8,501.91, per CNBC, while London’s FTSE 100 rose 0.14 percent to 10,743.35, its second consecutive gain and again the only gainer among the four benchmarks tracked here, on a day UK inflation rose to 2.9 percent in July from 2.6 percent on the largest gas price increase since October 2022, per CNBC.

In commodities, gold’s surge extended into the New York evening while crude held firm, as covered in our commodities wrap. COMEX gold for December traded at 4,569.70 dollars an ounce, up 3.37 percent, per CNBC, with ICE Brent for October at 91.45 dollars, up 0.47 percent, and WTI for September at 85.68 dollars, up 0.87 percent, per CNBC.

In currencies and crypto, the dollar fell broadly. The euro rose 0.87 percent to 1.1675 and sterling 0.52 percent to 1.3600, the yen strengthened 0.88 percent to 158.21 per dollar, and the dollar index dropped 0.85 percent to 98.814, with the Kuwaiti dinar at 0.3071, per CNBC. The Central Bank of Egypt’s official rate for 19 August is 50.6483 buy and 50.7877 sell per dollar, about 0.40 percent weaker than Tuesday, our calculation. Bitcoin jumped 6.36 percent to 68,713.10 dollars, per CNBC.

For reference, Wednesday’s closes from our 19 August wrap show Asia’s rout led by a 5.80 percent fall in Seoul while the Gulf split and Kuwait advanced, with Egypt’s EGX 30 down 1.38 percent in a third straight decline.

US equities, 19 August close, ranked by change

Europe equities, 19 August close, ranked by change

MENA equities, Wednesday 19 August closes, for reference, ranked by change

Asia equities, Wednesday 19 August closes, for reference, ranked by change

Commodities, late New York, 19 August, ranked by change

Currencies, 19 August

US Treasury yields, official daily par yield curve, 19 August

United States Department of the Treasury, Daily Treasury Par Yield Curve Rates; the curve is derived from indicative bid-side quotations obtained at or near 3:30 PM each trading day in New York; changes are our calculation from the two published rows.

Volatility and crypto, 19 August, ranked by change

Why it matters: Wednesday’s Western session belonged to one announcement, our reading. A buyback expansion aimed at the long end took the official 30-year yield down 9 basis points and the 20-year down 11, the sharpest one-day official long-end decline since this run of wraps began carrying the curve, our calculation from the published rows, and it did so on a day the Federal Reserve’s own minutes leaned hawkish, which says the long end’s pressure was about supply and liquidity mechanics as much as policy expectations, our reading. Equities took the relief but could not hold the morning’s full gains, with the indexes closing well off highs that had reached 0.7 percent, so the stock market’s verdict was calmer rates first, growth questions unchanged, our reading. The Russell leading and the volatility index unwinding 6.00 percent fit that reading. The dollar’s 0.85 percent drop and gold’s 3.37 percent evening surge read as the same trade seen from the other side, our reading, and London’s quiet outperformance continued against a soft continent even as UK inflation moved up to 2.9 percent.

Outlook: The markers from here are whether the long end holds Wednesday’s rally once the enlarged buyback operations begin on 9 September, whether Thursday’s Asian reopening steadies after Seoul’s plunge with the chip complex now facing calmer US rates, whether gold consolidates its jump, and whether Brent’s hold above 91 dollars extends, our reading. Egypt’s Monetary Policy Committee decision is due Thursday, with the pound’s official rate down about 1 percent over two days into it.

Sources: CNBC; Cboe; United States Department of the Treasury; Central Bank of Egypt.

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