NEW YORK, Aug 19 (Reuters) - Longer-dated global bond yields retreated from multi-decade highs, the dollar tumbled and gold jumped on Wednesday after the U.S. Treasury Department said it would boost liquidity support for longer-dated securities, following a broad selloff fueled by fears over swelling sovereign debt.
The U.S. Treasury Department said it would double the size of liquidity support buyback operations for longer-dated nominal coupon securities to at least $4 billion per operation from $2 billion.
U.S. long-dated government yields fell by as much as 10 basis points, dragging European government bond yields down too. U.S. long bonds had hit their highest in nearly 20 years on Tuesday, at nearly 5.34%, reflecting growing concerns about inflation and high debt.
"It goes to show a pretty strong acknowledgement from the administration that there's an inconsistent amount of demand, especially in off-the-run securities in the very back end of the Treasury curve," said Michael Lorizio, head of U.S. rates and mortgage trading at Manulife Investment Management in Boston.
The Treasury launched the buyback program in May 2024 to help improve liquidity in the $32 trillion Treasury market, with so-called off-the-run securities—older issues that trade less frequently—seeing the weakest demand.
Yields rise when bond prices fall. Because long-end sovereign yields act as a benchmark for the pricing of nearly every other asset class, including mortgage rates, sharp increases in yields pose a broader risk to the economy.
The drop in yields lifted stocks. The Nasdaq Composite (.IXIC), gained 0.31%, the S&P 500 (.SPX), was up 0.41% and the Dow Jones Industrial Average (.DJI), rose 0.29%. MSCI's gauge of stocks across the globe (.MIWD00000PUS), increased 0.06%.
But the retreat in yields weighed heavily on the dollar, even as it sent gold and cryptocurrency prices sharply higher—a divergence that reflects growing unease over the U.S. debt trajectory. Concerns about ballooning government debt typically erode confidence in fiat currencies, driving investors toward gold and other hard assets as a hedge.
The dollar index , which measures the greenback against a basket of currencies including the yen and the euro, fell 0.75% to 98.90, with the euro up 0.79% at $1.1666. Against the Japanese yen , the dollar weakened 0.73% to 158.46.
Bitcoin gained 5.63% to $68,191.56 and ethereum rose 9.23% to $2,088.95.
HOPES FOR PEACE IN IRAN RECEDE
Oil prices gained as the prospect receded of a deal to end the conflict in the Middle East. ,
U.S. crude rose 1.78% to $86.45 a barrel and Brent rose to $92.23 per barrel, up 1.32% on the day.
Long-term borrowing costs from the U.S. to Germany and Japan have soared as investors grow increasingly anxious about ballooning government debt and elevated inflation, pressures compounded by the Iran conflict's impact on oil prices.
German and French long-dated bond yields, which had earlier risen to their highest in 15 and 18 years respectively, traded lower on the day , .
"What we've seen in the course of recent days is that the long end of the bond market has obviously been selling off and potentially becoming somewhat problematic for the play through to other asset classes," Jeremy Stretch, head of G10 FX strategy at CIBC, said.
"Clearly, the Treasury Secretary has to be mindful of those risks and has made adjustments. That's why we are (now) seeing U.S. 30-year Treasury yields down sharply and the dollar cheapening."
A rise in Japan's benchmark 10-year bond yield toward 3%, a three-decade high, is also a warning sign for global debt markets that for years have depended on low Japanese rates driving a constant flow of Japanese investment abroad.
Minutes from the Federal Reserve's July meeting released on Wednesday showed that concern about inflation deepened, with "several" policymakers ready to raise interest rates and "many" saying a hike in borrowing costs would be needed if inflation does not decline to the U.S. central bank's 2% target.
The central bank left rates on hold last month, but Chairman Kevin Warsh unsettled markets by offering few clues on how policymakers might respond to persistent inflation.
Reporting by Iain Withers and Dhara Ranasinghe, Additional reporting by Tom Westbrook; Editing by Shri Navaratnam, Sam Holmes, Elaine Hardcastle, Barbara Lewis and Aurora Ellis
