US Treasury markets came under renewed stress as Treasury-focused exchange-traded funds posted one of their deepest weekly outflows relative to net asset value since 2005, according to Bloomberg data shared by Barchart. The redemptions coincided with a push in the benchmark 10-year Treasury yield toward 4.8% and a broader sell-off in global government bonds.
The trigger for the latest bond-market pressure was twofold. Stronger-than-expected US employment data raised expectations that the Federal Reserve could raise interest rates at its September meeting, while renewed hostilities between the United States and Iran lifted oil prices and added another inflation risk for fixed-income markets. The US military said it destroyed three Iranian oil tankers after Iran fired ballistic missiles at two US Navy warships, with CentCom stating it would not hesitate to defend American forces.
The scale of Treasury ETF withdrawals matters because large redemptions force fund managers to sell underlying government bonds, pushing prices lower and yields higher. That can create a negative feedback loop of additional ETF selling and further Treasury weakness. Hedge-fund leverage in the Treasury market has also increased, raising the risk of forced sales if yields continue to climb.
As a partial counterweight, the US Treasury is preparing debt buyback operations with at least $16.5 billion in capacity next week, and September’s total planned buyback capacity stands at at least $38.25 billion. Although these buybacks are a debt-management tool rather than Federal Reserve quantitative easing, they inject cash liquidity and are seen by markets as an implicit liquidity backstop. That can help stabilize borrowing costs and reduce the risk of panicked liquidations across equities, corporate debt and risk-on assets.
Separately, Alexander Lis, chief investment officer at SDV, argued that investors should be careful not to confuse Treasury debt buybacks with genuine monetary easing. On the latest episode of Zero Sum, Lis explained that if the Treasury finances buybacks by issuing shorter-term bills while buying longer-term securities, it is mainly changing the maturity profile of government debt rather than creating new money. Still, he said a shift away from longer-duration securities can reduce volatility in fixed income, improve the amount of usable collateral and create a broader risk-on effect without the central bank printing money.
Lis said Bitcoin and gold had been trading from relatively depressed levels with weak investor positioning, so an unexpected move could have forced short positions to unwind and amplified the rally. He sees crypto as a higher-beta expression of the debasement trade: if the debasement thesis strengthens, Bitcoin could outperform gold, but if that narrative fades, crypto could suffer substantially more. Lis is watching the next Treasury Quarterly Refunding Announcement and the Federal Reserve’s September meeting, while the August inflation report could prove particularly important. His base case is that the Fed does not raise rates if inflation data is broadly neutral.
