The US Treasury's ongoing intervention in the bond market continues to trigger a significant global shift in asset allocation. Following a series of measures aimed at influencing long-term Treasury yields, these rates saw a brief pullback, yet gold and technology stocks have diverged sharply in opposite directions. The 10-year Treasury yield rebounded to 4.7% after dipping during trading on August 24, while the 30-year yield closed at 5.23%. COMEX gold futures capitalized on the situation, surging to $4,700 per ounce, marking a four-month high, even as technology stocks, which would typically benefit from falling rates, experienced a sell-off of crash-like proportions.
Industry insiders told reporters that the core of the Treasury's intervention is "exchanging short-term liquidity for time to implement reforms." While this approach cannot resolve the fundamental $40 trillion deficit issue, it at least prevents the worst-case scenario of an immediate market collapse. Wall Street, however, is characterizing this as "financial repression," warning that the ultimate cost of this intervention may be borne by the US dollar itself. The GF Securities macro team analyzes that the "perfect low-risk premium dividend" of US Treasuries is fading, with three distinct conflicts tearing apart the pricing logic. Rising overseas risk-free rates are suppressing risk appetite in equity markets, and tech assets are once again showing sensitivity to duration. The team sees three potential paths to resolve the current predicament: establishing a new fiscal discipline framework; AI and other new technologies overcoming the Solow Paradox (where new tech fails to significantly boost productivity) to lift the economic growth trajectory; and a return to stable global capital allocation towards dollar assets. Among these, the technology-driven growth path appears more realistic, which may also be the underlying market logic for the US's all-in bet on AI.
**Intervention Fails to Suppress Yields**
The starting point for this round of intervention was August 18, when the 30-year Treasury yield hit 5.334% intraday, its highest level since June 2007. The following day, the Treasury Department urgently announced an expansion of the cap for its long-dated bond buyback program. On the evening of August 24 (Beijing time), reports emerged suggesting the Treasury might utilize nearly $1 trillion from its General Account (TGA) to repurchase bonds. However, the market seemed unimpressed, with yields briefly dipping after the news before quickly climbing back up. Major Wall Street banks generally believe that buybacks fail to address the root problem. Strategists at Goldman Sachs noted in a report that increasing long-dated Treasury buybacks doesn't solve the primary source of recent volatility in the long end of the market, and even expanding the scale further is unlikely to fundamentally reset interest rate levels. Wells Fargo argued that while buybacks reduce net supply of long-term Treasuries, they are insufficient to drive sustained declines in long-term yields. A genuine fall would require new macroeconomic catalysts like a significant slowdown in growth and inflation.
The GF Securities macro team offers a longer-term framework for explanation: besides actual growth expectations, three additional premiums determine Treasury yields – inflation expectations (influenced by geopolitical tensions and El Niño), term premium (due to AI corporate bond issuance and declining Fed credibility), and fiscal risk premium (with $40 trillion in debt and interest payments exceeding $900 billion). Currently, all three premiums are rising simultaneously, collectively pushing long-end rates higher. Deeper contradictions stem from three structural conflicts: the vicious cycle of "rising debt → higher interest costs → larger deficits → more issuance" between fiscal expansion and financing costs; waning willingness from overseas central banks to absorb debt amidst deglobalization; and the conflict between the massive upfront costs of AI infrastructure and lagging total factor productivity growth, causing the public sector and AI firms to compete for scarce savings, bidding up long-end rates. The "perfect low-risk premium dividend" of US Treasuries is therefore fading, global assets are reverting to macro-driven pricing, and tech assets are re-exhibiting duration sensitivity.
Yuan Yao, Senior Investment Strategist at Amundi Investment Institute Asia, analyzed that with geopolitics and the global macro landscape reshaping supply-demand dynamics, even if short-term economic cooling or fiscal intervention brings temporary relief, the structural supply-demand imbalance persists, keeping upward pressure on long-end Treasury yields. Jerry Chen, Senior Analyst at GAIN Capital, pointed out that a single quarter's bond buybacks of over ten billion dollars are a drop in the bucket compared to the tens of trillions of dollars in outstanding Treasury debt; such intervention cannot touch the core problem.
**Tech Stocks Plunge Amidst AI Bond Liquidity Mismatch**
With Treasury yields struggling to fall, tech stocks continue their slide. On August 24, the Nasdaq fell 0.76%, and the Philadelphia Semiconductor Index closed down 2.7%. Nvidia dropped 2.91% to $208.48, marking its seventh consecutive daily decline, the longest losing streak since 2022, with cumulative losses exceeding 7%. Memory chips were hit hardest, with Micron Technology down 5.8%, SanDisk down over 6%, and the top five memory chip leaders collectively falling nearly 5%. CICC had previously judged that rising long-end Treasury yields are a "result" rather than the "cause," suggesting the real source of risk might be in the AI corporate bond market.
From a macro data perspective, Treasuries themselves don't support continuously surging rates; in fact, they seem more likely to fall. July US CPI fell to 3.4% year-over-year, non-farm payrolls decreased by 23,000, and retail sales declined 0.6% month-over-month. CICC analysis indicates the macro data points to a slowing US economy. Deficit expansion is mainly supported by short-term debt, with net issuance of long-term bonds actually declining, and the Fed is still slowly expanding its balance sheet. Yet the market shows rates still climbing, with the source of the contradiction shifting to the corporate bond market. As of August, US investment-grade corporate bond issuance reached approximately $1.7 trillion, a record for this period, and 2026 net corporate supply could exceed that of US coupon-bearing Treasuries. The bid-to-cover ratio for new AI hyperscaler bond issues has fallen from nearly 5 times at the start of the year to less than 2 times, reflecting rapidly weakening market absorption capacity. CICC further analyzed that long-duration AI bonds and long-end Treasuries are both competing for limited duration capital from insurers and pension funds, creating localized liquidity mismatches in the long-duration bond market. Currently, spiking rates are fueling panic, creating a negative feedback loop among assets, leading to further declines in AI stocks, although the credit profiles of leading AI companies remain relatively healthy overall.
Yuan Yao also noted that large-scale debt issuance by AI companies is causing bond market disruptions. Major US cloud providers are expected to issue around $250 billion in bonds for the year, and total issuance by global AI-related entities could approach $600 billion. This massive financing demand diverts market liquidity, crowding out Treasuries. Combined with concerns that the Fed's monetary policy may struggle to handle persistently high inflation, pressure on long-end rates intensifies. Global real interest rates have also been generally rising recently, reflecting investors demanding higher yields to compensate for escalating fiscal risk. GF Securities mentioned that the deep-seated pressure on tech stocks lies in the market testing forward-looking pricing variables such as the pace of AI commercialization and whether computing power advantages can translate into pricing power. A brief dip in Treasury yields can only provide conditions for a rebound; the ultimate height of any recovery depends on whether the fundamentals of the tech industry can hold up.
**US Dollar as 'Pressure Valve', Gold Emerges as Biggest Winner**
What worries Wall Street most isn't that the intervention is ineffective, but that it works while shifting the cost elsewhere. Goldman Sachs' FX research team refers to the dollar as the "pressure valve" for US fiscal stress. If Treasuries aren't allowed to fall, pressure seeks other outlets, making the FX market the release pipe. The dollar index has recently fallen to a three-month low, touching 98.557. Deutsche Bank categorizes the Treasury buyback operation as "soft financial repression," viewing it as structurally bearish for the dollar. CICC also mentioned that the Treasury market's long-standing institutional advantages of free trading and market-based pricing are being undermined by increased direct government intervention, without corresponding policies to reduce fiscal deficits or address fundamental issues like surging AI bond supply and insufficient ultimate buyers for Treasuries. This could further erode confidence in Treasuries and the dollar, increase market uncertainty, and push up term premiums.
Correspondingly, gold has emerged as the biggest winner in this "great asset shuffle." On August 25, COMEX gold futures hit an intraday high of $4,755 per ounce, while London spot gold touched $4,697 before retreating to around $4,640, setting a four-month high and rebounding over 15% from its low in early August. Chang'an Futures analysis points to a rare "triple divergence" where gold prices, Treasury yields, and oil prices rise simultaneously. From August 20-21, despite long-end Treasury yields climbing again, gold held onto most of its gains and broke through the $4,600 mark, "indicating the sustainability of this breakout." With US debt surpassing the $40 trillion threshold, market logic has shifted beyond the traditional narrative of rate cuts towards a repricing of US fiscal credibility. Institutions are raising their price targets. Goldman Sachs suggests that surging demand for gold call options could further amplify the rally. UBS maintains its year-end target of $4,600 and has introduced a new target of $5,400 for end-September 2027. Deutsche Bank provides a year-end target range of $4,700-$5,100, while Citi sees $5,000-$6,000 over the next year.
The upcoming Jackson Hole symposium on August 27, with comments from Fed Chair Warsh, will be a key test for the credibility of this "bond market taming game." The profound changes in the market environment are also forcing a rethink of traditional asset allocation frameworks. "In the new market normal of inflation, persistent US fiscal risk, and frequent supply shocks, the value of Treasuries as a hedging tool for risk assets needs to be reassessed," Yao said. For the classic 60/40 portfolio, the 40% traditionally allocated to long-duration bonds should be more evenly distributed across a broader range of asset classes – for example, using energy and commodities to hedge against inflation, gold to hedge geopolitical shocks, and high-quality corporate bonds to manage duration risk.