Commentary

• US Treasury Secretary Bessent increased long-term Treasury buybacks in an off-cycle move, signaling to markets that a specific yield pain barrier exists. • Intra-EMU spreads rose throughout August, with Italy, Belgium, and France underperforming, suggesting ongoing market concerns regarding their public finance records. • While US yields are rebounding from recent lows, the US dollar remains stagnant, potentially indicating a loss of credibility due to perceived political interference in financial markets.

• European markets experienced a shift from bear steepening to bear flattening yesterday, with German yield curve changes ranging from +2.4 bps (30-yr) to +5 bps (2-yr). • EU swap rates also rose, adding between 0.9 bps for 30-year rates and 4.5 bps for 2-year rates, driven by higher energy prices and the US/Iran stalemate. • In Australia, RBA Assistant Governor Kent indicated that softening housing market conditions may reduce the need for further monetary policy constraints.

• The US Treasury announced it is at least doubling the size of liquidity support buyback operations for longer-dated nominal coupon securities (10y to 20y and 20y to 30y). • The maximum size per operation will increase from $2 billion to at least $4 billion. • This policy change takes effect on September 9 and will remain in place through the end of the current refunding quarter on November 4.

• The US yield curve experienced a bear steepening yesterday, despite a lack of specific economic or monetary data triggers. • Daily yield changes varied across the curve, ranging from a modest +0.6 bps for 2-year notes to +4.7 bps for 30-year bonds. • Notably, the US 30-year yield surpassed 5.3%, marking the first time this threshold has been crossed since 2007, just before the global financial crisis.

• US core bonds are experiencing bear steepening pressures, with the 30-year Treasury note remaining near year-to-date highs, the highest levels seen since 2007. • China's industrial production growth slowed to 4.5% year-over-year, down from 5.3%, while year-to-date growth dipped slightly to 5.3%. • A significant economic divergence has emerged in China, where strength in the AI and advanced manufacturing sectors is contrasting with widespread weakness across the rest of the economy.

• Japan's economy grew by 0.3% quarter-on-quarter (1.1% annualized) in Q2, missing the consensus estimate of 0.5% and decelerating from Q1's 0.5% growth. • The growth was driven almost entirely by net exports, as exports rose 0.5% while imports contracted by 1.5%. • Domestic demand remained weak, characterized by flat private consumption and a 1.2% decline in business spending.

• India posted a strong first-innings total of 462 during the 1st Test of their 2026 tour of Sri Lanka. • Sri Lanka is currently 252/7 after 71.4 overs in their first innings, with Sonal Dinusha leading the scoring with 88 runs off 151 balls. • The match highlights a significant deficit for the home side, as they struggle to match India's dominant batting performance.