US debt tops $40 trillion as 30-year yields hit 5.25%

The US Treasury's doubling of long-duration buybacks to $4 billion per operation failed to hold, with 30-year yields climbing 5.5 basis points to 5.249 percent Thursday as federal debt crossed $40 trillion.

"The Treasury's move should provide just short-term relief because the key drivers pushing yields higher — inflation, monetary policy uncertainty and huge fiscal deficits — are still in place," said Luis Alvarado, co-head of global fixed income at Wells Fargo Investment Institute.

The 10-year yield rose 4.7 basis points to 4.70 percent, while the dollar index recovered to 98.88 after Wednesday's 1 percent drop. Last week's 30-year auction cleared at 5.216 percent, above the 5.059 percent that preceded the 2007 subprime crisis — when federal debt stood at just $5 trillion. Net interest payments now consume one-fifth of federal revenue, creating a self-reinforcing deficit spiral.

The stakes extend beyond Washington. US Treasury auctions absorb roughly $12 trillion annually, competing with corporate issuance like Google's A$5.5 billion kangaroo bond at 6.98 percent for 20-year money. As global capital costs rise, the transmission is immediate: German 30-year yields sit at 15-year highs, Japanese long-end yields at three-decade peaks, and gold has surged through August as dollar trust erodes.

The Treasury's intervention drew sharp criticism from analysts who see it as ad hoc market management rather than structural reform. Krishna Guha at Evercore ISI called it "a weak form of Operation Twist" that risks backfiring if read as a sign Washington struggles to fund itself cheaply. JPMorgan's Maia Crook warned the move "belies the underlying structural challenges and does nothing to address them."

Bessent defended the approach, telling CNBC the Treasury would "increase the size of the buyback" beyond the $4 billion ceiling and that "it could be more than the $4 billion per issue." He pointed to weak liquidity at the 30-year point during a thin August market, adding that the Treasury has "a big toolkit" beyond buybacks, with a fiscal consolidation plan expected by end of week.

The RMB safe-haven case

The divergence between US and Chinese assets is stark. While US long yields surge, China's 10-year yield sits at 1.68 percent, and the yuan's central parity rate has climbed to a 3.5-year high, with USD/CNY at 6.4845. The structural argument rests on three pillars: China's complete manufacturing clusters that control costs through vertical integration, a unified domestic market driving scale economies, and trade diversification across 160-plus trading partners.

Foreign direct investment data supports the shift. High-tech FDI into China reached 1,703.3 billion yuan in H1, up 33.2 percent year-on-year, with R&D and design services surging 82 percent. As the global economy enters a high-cost production era — driven by geopolitical fragmentation, tariffs, and expensive capital — China's cost-control advantages become more valuable.

What happens next

The Treasury's fiscal consolidation announcement, expected by end of week, will test whether Washington can address the structural drivers. Michael Goosay, chief investment officer of fixed income at Principal Asset Management, noted that "any intervention typically doesn't work that well in the long term. After a while, the yields tend to just return to levels that had been in place before."

Eric Robertsen at Standard Chartered was more pointed: "The only conclusion we can draw is that yields reached a level that they don't like, and I think that suggests a willingness to try and control or intervene against natural supply and demand."

For RMB assets, the path forward depends on whether the yuan's strength persists as a genuine safe-haven bid or merely reflects dollar weakness. With A-shares at low valuations and China's policy space intact, the case for independent performance is building — but the immediate risk is that global risk-off sentiment drags all assets lower before the divergence plays out.

This article is for informational purposes only and does not constitute investment advice.