US MARKET WRAP: Treasuries and stocks rise, dollar weakens as US Treasury doubles buybacks of long-term bonds

• SNAPSHOT: Equities mixed, Treasuries up, Crude up, Dollar down, Gold up.
• REAR VIEW: US Treasury increasing the size of liquidity support buyback operations for longer-dated nominal coupon securities at least double; FOMC Minutes show; Weak 20yr bond auction; EIA crude stocks unexpectedly build, SPR falls; US reportedly set to halve tariffs on Canadian steel and aluminium in trade deal; Mixed UK CPI; MRK & MRNA vaccine succeeds in preventing melanoma from returning; SK Hynix to buy back KRW 40tln in treasury shares
• COMING UP: Data: Japanese Trade Balance (Jul), Chinese LPR (Aug), Australian Jobs Report (Jul), German PPI (Jul), Canadian PPI (Jul), US Initial Jobless Claims (Aug/15), New Zealand Trade Balance (Jul). Events: Riksbank Policy Announcement (Aug). Speakers: Riksbank's Thedeen. Supply: Japan, France. Earnings: Walmart, Alibaba.

US indices were mixed, with the tech-heavy Nasdaq 100 underperforming, while sectors saw an upward bias; Industrials, Technology, Financials, and Energy were in the red, with Health outperforming and buoyed by Moderna surging in excess of 165% after a cancer breakthrough drug trial with Merck. Nonetheless, the main story on Wednesday was the US Treasury announcing it is increasing, by at least double, the size of liquidity support buyback operations for longer-dated nominal coupon securities, from the current USD 2bln to at least USD 4bln. Following this update, US Treasury yields fell, particularly in the long end, while the Dollar saw notable pressure. Given this, all G10 FX peers gained vs. the Greenback, with the Swissy outperforming. WTI and Brent eked out slight strength as a US/Iran deal seems no closer, although geopolitical newsflow was light on Wednesday. There was no US data or Fed speak, and the latest FOMC Minutes were largely as expected with few shocks (review below). Precious metals surged on the aforementioned news, while crypto saw a rally through the US session.

FOMC MINUTES: The FOMC Minutes were largely as expected, as they noted that most participants at the July confab supported keeping interest rates unchanged, while several favoured an increase, as we know due to the three hawkish dissenters. Within those dissenters, a few participants judged doing so would likely help forestall the need for further hikes. Most participants assessed higher rates would likely be necessary if inflation did not fall, but that is a pretty consensus view given recent rhetoric and the importance the Committee have stressed of getting inflation back to target. Almost all FOMC members agreed it was appropriate to retain the policy statement affirming FOMC 'will deliver price stability', but no caveat was issued into what the others saw or the reasoning. Fed staff economic outlook showed inflation outlook was similar to one prepared for June meeting, but economic outlook was 'a touch weaker'. On the meeting schedule, Chairman Warsh said six scheduled meetings per year, held roughly every two months, would allow more information to accumulate between meetings, but no decision was made and Warsh indicated no change to the 2026 schedule. All in all, the latest Minutes were dwarfed by recent data, which has no doubt been dovish and shifted money market pricing to favour a hold instead of a hike. One of the unknowns remains the US/Iran war. Nonetheless, Pantheon Macroeconomics notes, as things stand, it is unlikely any other FOMC members will be joining the three hawks, and they continue to think that a majority of members will vote to keep policy unchanged through the fall and winter, as the labour market stays weak and domestically-generated inflation continues to cool.

T-NOTE FUTURES (U6) SETTLED 7 TICKS HIGHER 108-25

Yield curve flattens after Treasury boosts long-end buybacks. At settlement, 2-year+0.2bps at 4.179%, 3-year +0.2bps at 4.253%, 5-year -1.4bps at 4.353%, 7-year -3.6bps at 4.487%, 10-year -5.7bps at 4.651%, 20-year -9.3bps at 5.184%, 30-year -9.1bps at 5.195%.

THE DAY: The Treasury curve flattened on Wednesday, with the primary driver of price action a surprise announcement from the US Treasury that it will increase the maximum size of its long-end liquidity-support buyback operations. The Treasury said it will increase the maximum purchase amount per operation to "at least" USD 4bln from USD 2bln, following strong offers at recent long-end operations. The announcement supported the long end and reversed some of the pronounced steepening seen in recent sessions.

Desks have questioned the timing of the announcement, given the Quarterly Refunding Announcement was released only two weeks ago, when the Treasury laid out its quarterly buyback schedule. Since then, long-end yields have risen to levels not seen since before the Global Financial Crisis.

ING notes that while the Treasury says the change is purely intended as a liquidity enhancement, the timing raises the possibility that it is responding to the seemingly relentless rise in long-dated yields. The desk suggests the move could signal that the Treasury is monitoring developments and is prepared to act, although it stresses that buybacks are ultimately a zero-sum operation and are therefore unlikely to materially alter the natural trajectory of long-end yields. ING instead expects the measure to provide some dampening effect on the recent rise.

Aside from that, the FOMC Minutes confirmed signals sent from Fed members in recent weeks; Several favoured a rate increase at the July meeting while most participants assessed higher rates would likely be necessary if inflation did not fall. Meanwhile, Chair Warsh argued for six scheduled meetings per year, down from eight, albeit no final decision was made.

Meanwhile, the 20-year bond auction was soft, tailing by 0.5bps with a below-average bid-to-cover ratio and above-average dealer allocation. Direct demand improved notably, but indirect participation fell below both the prior auction and recent average. The auction followed the sizeable richening in the long end after the Treasury's buyback announcement, which reduced the yield concession available to investors heading into the offering and may have contributed to the softer result.

SUPPLY

Notes/Bonds

• US sold USD 16bln of 20-year bonds; tail 0.5bps.

Bills

• US sold 17-week bills at a high rate of 3.750%, B/C 3.35x.

STIRS / OPERATIONS

• Fed Hike Pricing via CME FedWatch: Sept 8.7bps (prev. 9.2bps), Dec 23bps (prev. 24.0bps).
• EFFR at 3.63% (prev. 3.63%), volumes at USD 89bln (prev. USD 93bln) on August 18th.
• SOFR at 3.65% (prev. 3.66%), volumes at USD 3.01tln (prev. USD 3.068tln) on August 18th.
• NY Fed RRP op demand at USD 0.32bln (prev. USD 0.15bln) across 18 counterparties (prev. 6) on August 19th.

WTI (V6) SETTLED USD 0.33 HIGHER AT 84.39/BBL; BRENT (V6) SETTLED USD 0.60 HIGHER AT 91.62/BBL

The crude complex saw slight gains on Wednesday in light geopolitical newsflow. While US/Iran updates were fairly sparse, the most notable update was arguably an Iranian official remarking that a 'new passage' in the Strait of Hormuz will soon be announced in a joint statement with Oman. In the weekly EIA data, which saw modest downside in benchmarks, crude and gasoline stocks saw unexpected builds, while distillates saw a larger draw than anticipated. The US SPR fell by 5.3mln barrels to 293.4mln. Overall, crude production was up 25k bbls W/W to 13.83mln. In the private inventory figures, crude saw a slight draw. During the day, crude saw two-way trade before seeing a bout of weakness into settlement, albeit on nothing headline-driven. For the record, little move was seen on FOMC Minutes. WTI traded between USD 83.45-85.84/bbl and Brent USD 90.40-92.81/bbl.

CLOSES: SPX +0.22% at 7,708, NDX -0.22% at 29,426, DJI +0.22% at 53,468, RUT +0.50% at 3,033

SECTORS: Industrials -0.89%, Technology -0.73%, Financials -0.61%, Energy -0.3%, Utilities flat, Communication services +0.53%, Real estate +0.74%, Consumer staples +0.79%, Materials +1.67%, Consumer discretionary +2.15%, Health +3.52%

EUROPEAN CLOSES: Euro Stoxx 50 -0.39% at 6,443, Dax 40 +0.01% at 26,130, FTSE 100 +0.14% at 10,743, CAC 40 -0.09% at 8,502, FTSE MIB -0.75% at 52,618, IBEX 35 -0.44% at 19,848, PSI -0.71% at 9,239, SMI +0.46% at 14,387, AEX -0.44% at 1,102

STOCK SPECIFICS

• Merck & Co. (MRK) / Moderna (MRNA): Companies' vaccine succeeds in preventing melanoma from returning.
• Analog Devices (ADI): EPS and revenue topped Wall Street expectations, as did next-quarter outlook.
• Toll Brothers (TOL): Top and bottom line beat.
• Lowe's Companies (LOW): Revenue and comparable sales light, as was top-line FY guidance.
• Estée Lauder Companies (EL): Strong results, with quarterly metrics beating expectations and FY outlook lifted.
• Nebius Group (NBIS): To offer USD 4.5bln of convertible senior notes.
• Samsung Electronics: Reportedly raises prices for advanced contract chipmaking services by 10-15% for new orders.
• SK Hynix: To buy back KRW 40tln in treasury shares.
• US President Trump says CFTC working to bring Hyperliquid (PURR) into the US in a legal fashion.

USD was sold on Wednesday, weighed by the drop in long-end yields in response to the US Treasury announcing plans to increase the size of liquidity support buyback operations for longer-dated nominal coupon securities by at least double. The announcement marks a signal from the US Treasury of a willingness to step in and ease fears over rising long-end yields; however, given the increase only pertains for the remainder of this refunding quarter, further USD weakness may be limited. The initial USD weakness extended throughout the day and held, leaving DXY back at May levels of 98.84. Separately, FOMC Minutes sparked little reaction. The Minutes highlighted what Fedspeak has pointed towards in recent weeks: Most participants assessed higher rates would likely be necessary if inflation did not fall. Meanwhile, Chair Warsh made the case that six scheduled meetings per year instead of eight would allow more information to accumulate between meetings; no final decision was made.

CHF, NZD and EUR were the top gainers vs USD, with AUD seeing some relative underperformance, albeit still notably firmer against the Greenback. GBP/USD had a muted reaction towards UK CPI, which saw the headline match expectations while core came in hot. Ultimately, the release doesn't alter the BoE's expected policy path of holding rates through year-end. ING notes the BoE's core services measure of inflation has picked up a little to 3.8% Y/Y, which, while hotter, shouldn't be too much to encourage those on the fence for tightening.