Analyst
Analyst
Analyst
Natthida Chuaysong
Highlights
The US Treasury has doubled its long-end buyback operations, but the structural forces keeping yields high remain unchanged.
Higher US yields are risk-on for Thai equities and risk-off for Thai duration, not a broad risk-off event. We expect episodic volatility in Thai equities from foreign positioning and rate differentials, but our earnings and fundamental view stay unchanged. Our SET target is 1,818, implying roughly 12% upside, as the case for Thai equities strengthens relative to Thai fixed income.
We favour stock selection over market beta, and prefer telecoms, healthcare and energy: ADVANC, TRUE, BDMS, BH, PTT and PTTEP.
What’s New
The US Treasury has stepped in to support long-end bonds, but the real driver of high yields is still there. The 10-year Treasury yield has climbed from about 4.2% at the start of the year to 4.79%, and the 30-year yield now sits at 5.25%, raising borrowing costs for the government and private sector alike. On 19 August, the Treasury said it would at least double its long-end buybacks, from US$2b to at least US$4b each, across the 10- to 20-year and 20- to 30-year sectors, and raise these operations from two to four per quarter through the 4 November refunding. The programme targets market liquidity, not lower yields.
Buybacks can cap spikes, but they cannot push yields structurally lower, because the total size of the programme has not grown. The quarterly liquidity-support allocation stays unchanged at US$38b, plus a separate US$25b for cash management. The Treasury is shifting existing capacity toward the long end, not adding new buying power, and unlike the Fed it creates no reserves: Every retired bond is refinanced elsewhere on the curve. The 10-year yield closed 5.7bp lower at 4.647% and the 30-year yield fell 9bp to 5.196% on announcement day, but both have since round-tripped above pre-announcement levels. Buybacks are liquidity support, not a structural fix.
What is really keeping yields high is a term premium driven by fiscal and global forces, and no buyback can fix that. Inflation is well below its 2021 peak but still runs near 3.5% against a 2% target. After an August payroll print of +162,000 versus a +56,000 consensus, Interest-rate futures imply a roughly 52% probability that the Fed will raise rates by 25bp this month. The term premium sits near post-2011 highs, driven by rising public debt, persistent deficits and heavy duration supply, with higher Japanese Government Bond (JGB) yields and softer foreign demand adding pressure. Buybacks should contain volatility, but a lasting drop in the 10-year yield needs weaker growth and inflation, lower issuance, or real improvement in US fiscal dynamics.
The pressure on yields is structural, not cyclical. Four forces are at work: a) a widening fiscal deficit and high public debt-to-GDP ratio; b) a buyers' strike in the long end since late-June, worsened by heavy corporate bond issuance competing for the same duration budget; c) a weaker dollar reducing the incentive for unhedged foreign holders; and d) external spillover, mainly rising JGB yields under a tightening Bank of Japan, making Japan's own bonds more attractive to its institutional buyers. Our internal work shows the US term premium has tracked the debt-to-GDP ratio and current account deficit closely over the past five years, at correlations of 97% and 80%.
Highlights
The US Treasury has doubled its long-end buyback operations, but the structural forces keeping yields high remain unchanged.
Higher US yields are risk-on for Thai equities and risk-off for Thai duration, not a broad risk-off event. We expect episodic volatility in Thai equities from foreign positioning and rate differentials, but our earnings and fundamental view stay unchanged. Our SET target is 1,818, implying roughly 12% upside, as the case for Thai equities strengthens relative to Thai fixed income.
We favour stock selection over market beta, and prefer telecoms, healthcare and energy: ADVANC, TRUE, BDMS, BH, PTT and PTTEP.
What’s New
The US Treasury has stepped in to support long-end bonds, but the real driver of high yields is still there. The 10-year Treasury yield has climbed from about 4.2% at the start of the year to 4.79%, and the 30-year yield now sits at 5.25%, raising borrowing costs for the government and private sector alike. On 19 August, the Treasury said it would at least double its long-end buybacks, from US$2b to at least US$4b each, across the 10- to 20-year and 20- to 30-year sectors, and raise these operations from two to four per quarter through the 4 November refunding. The programme targets market liquidity, not lower yields.
Buybacks can cap spikes, but they cannot push yields structurally lower, because the total size of the programme has not grown. The quarterly liquidity-support allocation stays unchanged at US$38b, plus a separate US$25b for cash management. The Treasury is shifting existing capacity toward the long end, not adding new buying power, and unlike the Fed it creates no reserves: Every retired bond is refinanced elsewhere on the curve. The 10-year yield closed 5.7bp lower at 4.647% and the 30-year yield fell 9bp to 5.196% on announcement day, but both have since round-tripped above pre-announcement levels. Buybacks are liquidity support, not a structural fix.
What is really keeping yields high is a term premium driven by fiscal and global forces, and no buyback can fix that. Inflation is well below its 2021 peak but still runs near 3.5% against a 2% target. After an August payroll print of +162,000 versus a +56,000 consensus, Interest-rate futures imply a roughly 52% probability that the Fed will raise rates by 25bp this month. The term premium sits near post-2011 highs, driven by rising public debt, persistent deficits and heavy duration supply, with higher Japanese Government Bond (JGB) yields and softer foreign demand adding pressure. Buybacks should contain volatility, but a lasting drop in the 10-year yield needs weaker growth and inflation, lower issuance, or real improvement in US fiscal dynamics.
The pressure on yields is structural, not cyclical. Four forces are at work: a) a widening fiscal deficit and high public debt-to-GDP ratio; b) a buyers' strike in the long end since late-June, worsened by heavy corporate bond issuance competing for the same duration budget; c) a weaker dollar reducing the incentive for unhedged foreign holders; and d) external spillover, mainly rising JGB yields under a tightening Bank of Japan, making Japan's own bonds more attractive to its institutional buyers. Our internal work shows the US term premium has tracked the debt-to-GDP ratio and current account deficit closely over the past five years, at correlations of 97% and 80%.
Analyst
Analyst
Analyst
Natthida Chuaysong
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