China Merchants Securities: Term Premium Expansion Drives the Current Round of U.S. Treasury Yield Rise
Nashnova编辑部
The U.S. 10-year Treasury yield has broken above 4.7%. China Merchants Securities attributes the move to expanding term premium — a supply-demand imbalance in long-dated debt compounded by rising fiscal-risk pricing — with the near-term path hinging on Fed Chair Waller's remarks at the global central bankers' conference.
Why do Treasury yields keep climbing?
China Merchants Securities (招商证券) says the driver is not rate-hike expectations but term-premium expansion — the extra compensation investors demand for holding long-dated bonds is widening. This means → markets are increasingly uneasy about long-term risk.
Foreign demand is fading fast: in H1 2026, overseas investors' net purchases of medium- and long-term Treasuries totaled $178.2 billion, down 42.92% year-on-year. Official foreign buyers (central banks, sovereign funds) were net *sellers* of $3.6 billion, a 223.34% swing.
In plain terms = global central banks used to be the biggest buyers of U.S. debt. Now they are selling. Fewer buyers means prices drop and yields get pushed up.
How are AI giants crowding out Treasuries?
Since early 2026, Amazon, Google, Meta, and Oracle have issued roughly $123 billion in long-term corporate bonds — multiples of any prior single year — with maturities stretching to 30–40 years, competing directly with long-end Treasuries for the same pool of duration-hungry capital.
Dallas Fed researchers estimate these issuances may create up to $360 billion in 10-year-equivalent duration supply — about one-eighth of total Treasury duration supply over the same period.
This means → the pool of long-duration capital is finite. AI corporates are absorbing a large share, leaving even fewer buyers for government bonds — a variable that simply did not exist before.
Can the Treasury's expanded buybacks stabilize the market?
On August 19, the U.S. Treasury announced it would at least double the per-operation size of its long-bond liquidity-support buybacks from $2 billion to at least $4 billion, covering 10- to 30-year maturities, effective September 9 through November 4.
The 10-year yield briefly dipped to around 4.65%; spot gold surged over $113 to $4,446/oz. But the relief faded quickly — by Friday's close, the 10-year was back above 4.7%, settling at 4.732%.
In plain terms = the buyback mechanism works like a twist operation — fund long-bond purchases by issuing short-term debt. It adds no new liquidity; it just shortens the weighted duration of outstanding Treasuries. At $4 billion/month against average monthly long-bond issuance of $37 billion, the scale is modest. The signal matters more than the substance.
How heavy is the U.S. government's interest burden?
As of June 2026, the U.S. government's rolling 12-month interest payments consumed 22.74% of fiscal revenue. This means → for every $100 in tax revenue, nearly $23 goes to interest alone.
High deficits and high rates are reinforcing each other: larger deficits → more borrowing → higher yields → bigger interest bills → even larger deficits. The Treasury recently raised its Q3 net marketable borrowing estimate to $739 billion.
This reflects something deeper than short-term supply-demand friction — it is the market pricing in doubt about America's long-run debt sustainability.
What might the Fed Chair say at the global central bankers' conference? Three scenarios
Scenario 1 — Stay vague: dodge policy triggers. Short-end yields hold steady, long-end keeps climbing. Dollar weakens; gold strengthens.
Scenario 2 — Hawkish tilt: stress inflation resolve, keep a rate-hike option on the table. Short-end yields rise, long-end may ease. Dollar strengthens; equities face near-term pressure.
Scenario 3 — Neutral-to-dovish: offer a clearer policy reaction function. Treasury yields fall, dollar weakens, beaten-down tech stocks could recover, gold rallies. Markets currently price in a 70%+ probability of a rate hike this year, with 40%+ odds for September.
How should portfolios be positioned now?
Gold: caught short-term between real-rate pressure and the narrative of eroding dollar credibility; after a sizable prior rebound, expect elevated volatility. Gold remains a key hedge while Treasury-yield risk persists.
A-shares: the liquidity-driven rebound since August has largely played out. Rising yields plus the approaching interim-results disclosure window point to higher volatility and near-term pressure. Style recommendation: balance dividend plays + small-cap growth; sector focus across tech innovation, corporate overseas expansion, and undervalued re-rating — specifically electronics, pharmaceuticals, non-ferrous metals, and coal.
This reflects China Merchants' core call: if long-end yields spike further, the Treasury may be forced into bigger policy action. Even though structural tensions remain, a subsequent pullback in yields could create a better entry window.
Content is for reference only, not financial advice.