Bond markets rattle economy, forcing controversial buyback ‘Band-Aid’

The U.S. bond market is raising alarm bells for the economy, forcing the Trump administration to take emergency measures to ease the immediate impact on American pocketbooks. 

Long-term borrowing costs hit their highest levels across the world on Tuesday, with the cost for the U.S. government to borrow money reaching its highest rate in nearly two decades. 

Experts say the unpredictability surrounding the Iran war, President Trump’s erratic trade policies, massive spending on artificial intelligence and the soaring national debt are all contributing to the choppy economic waters.

“One explanation is uncertainty,” said Benjamin Chabot, an adjunct associate professor at Northwestern University and a former senior policy adviser at the Federal Reserve.

“We have a new Fed Chair. We have an FOMC [Federal Open Market Committee] that looks legitimately divided about what the proper policy path is, and that’s largely driven by uncertainty about the economy,” he said. 

The yield on the 30-year Treasury bond surpassed 5.3 percent on Tuesday, marking the highest yield since April 2007 — mere months before the start of a financial crisis that upended the global economy in the late 2000s. 

The 30-year bond yield ticked down to 5.285 percent at the close of business on Tuesday and has since dipped to nearly 5.2 percent as of Wednesday afternoon. The yield on the 30-year bond has not closed at under 5 percent since July 6.

The decline in bond yields on Wednesday came after the Treasury Department said it will double the maximum amount of the country’s long-term debt it can buy back. The increase, from $2 billion to $4 billion per operation, will be in effect from Sept. 9 through at least Nov. 4. The Treasury typically conducts so-called liquidity support buyback operations once or twice a week. 

“The bond reaction to me signals that they are finally paying attention,” said John Deal, managing director in the capital markets advisory practice at investment bank Post Oak Group.

The Treasury Department is “finally saying........

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