Following the release of strong non-farm payroll data, market pricing in a September rate hike by the Federal Reserve rose to approximately 57%, with short-term interest rates continuing to fluctuate around Warsh's policy path. Meanwhile, the yield on the 30-year US Treasury bond remained around 5.25%, reflecting that the long-term market is still digesting inflation, fiscal supply, and term premiums.
The Treasury Department will raise the single repurchase limit for 10-30 year old bonds from $2 billion to at least $4 billion from September 9th to November 4th. However, the official purpose is to improve long-term liquidity, not to set a yield cap; repurchase agreements are not equivalent to the Fed's QE and cannot eliminate the supply pressure from new financing.
Therefore, short-term rates are driven by rate hike expectations, while long-term rates are priced in by supply, inflation, and term risk. When both drivers change simultaneously, interest rate fluctuations will be transmitted to other assets through duration gains/losses, the stock discount rate, and US Treasury collateralized financing.
