U.S. borrowing costs rise despite Treasury’s efforts to curb them

WASHINGTON (U.S. TREASURY OPERATIONS), TOKYO (JAPAN’S MINISTRY OF FINANCE), NEW YORK (FEDERAL RESERVE BANK OF NEW YORK), 13 OCTOBER 2026 —

U.S. Treasury’s Failed Bond Market Interventions Expose Structural Pressures as Global Yields Climb

U.S. Treasury Secretary Scott Bessent’s unprecedented interventions to curb soaring long-term borrowing costs have failed to stem the sell-off, leaving yields at 19-year highs and raising concerns about the sustainability of global financial stability.

The Treasury’s coordinated efforts—including a yen-support operation with Japan and expanded buybacks of long-term debt—have not reversed the upward trajectory of 30-year Treasury yields, which hit 5.36%, as persistent inflation, fiscal deficits, and surging AI-related capital expenditures continue to weigh on markets.

The Treasury’s first intervention, a July 31 operation with Japan’s Ministry of Finance (MoF), aimed to prop up the yen without selling Treasuries—a move intended to avoid further upward pressure on U.S. long-term rates. The Federal Reserve Bank of New York facilitated the intervention by buying yen with euros from the Exchange Stabilization Fund, while Treasury reportedly encouraged Japan to use the Fed’s FIMA repo facility to borrow dollars against Treasury holdings.

The yen strengthened from ¥164 to the dollar to ¥155, but Japan later disclosed it spent roughly $99 billion on interventions between July 30 and August 25, with its foreign-securities reserves falling by $88 billion—suggesting it liquidated Treasuries rather than relying on the FIMA facility. The intervention thus failed to prevent bond sales, undermining its stated purpose.

On August 19, Treasury shifted to direct market intervention, announcing plans to double its buybacks of long-term securities for "liquidity support." The move initially pushed yields down, but they quickly rebounded. On September 10, Treasury executed a $5.2 billion buyback of long-term debt—a trivial 0.016% of the marketable Treasury market—apparently intended as a psychological signal rather than a meaningful intervention.

Yields remained unchanged, reinforcing analysts’ warnings that the Treasury market’s scale requires fundamental shifts, not gimmicks, to lower rates.

Four experts at the Council on Foreign Relations (CFR) attribute the persistent sell-off to structural imbalances rather than temporary market volatility. Benn Steil, senior fellow and director of international economics, argues that only lasting changes—such as a shrinking fiscal deficit, lower inflation, reduced AI infrastructure borrowing, or less aggressive financial sanctions—could durably lower yields. "The U.S. Treasury market is now so vast that only fundamental changes in the supply of, and demand for, U.S.

debt can durably lower interest rates," Steil said. "Ad hoc government gimmickry merely burns credibility."

Rebecca Patterson, a senior fellow and macroeconomic researcher, notes that U.S. Treasury yields remain the anchor for global bond markets, but the impact varies by region. Mexico, with its economy deeply integrated with the U.S., has seen its government bonds closely track U.S. peers, while Brazil’s bond markets have been dominated by domestic political uncertainty. Europe’s rising yields reflect both U.S. contagion and domestic fiscal challenges, including ballooning deficits and political resistance to austerity.

"The United States can use intervention to slow the pace of these moves, but without changes in underlying fundamentals, the direction of yields still appears biased higher," Patterson said.

The rise in U.S. yields has broader implications for global capital flows and economic policy. Sebastian Mallaby, Paul A. Volcker senior fellow for international economics, highlights how the shift from "software eating the world" to AI-driven capital intensity has reversed a decade of secular stagnation. AI infrastructure—including advanced semiconductors, data centers, and energy systems—requires trillions in capital expenditure. Goldman Sachs estimates U.S.

AI-related spending at $581 billion this year, or 1.8% of GDP, with the global figure reaching $1 trillion. Mallaby warns that increased borrowing for AI could push long-term yields up by 20–30 basis points per 1% of GDP added to debt.

The Treasury’s interventions have also drawn scrutiny over their long-term effects on market credibility. While short-term yield movements may be stabilized, the underlying drivers—high inflation, fiscal deficits, and geopolitical tensions—remain unresolved. The U.S. dollar’s dominance as the world’s reserve currency continues to face challenges, particularly as countries like China and Russia explore de-dollarization strategies in response to financial sanctions.

Without policy adjustments, the trajectory of rising yields is likely to persist, with ripple effects across global markets and economic growth.

For Malaysia and the region, the implications are significant. As a major borrower in global markets, Malaysia’s sovereign yields have historically moved in tandem with U.S. Treasuries, making the current environment particularly challenging. Higher borrowing costs could increase the government’s debt servicing burden, while corporate borrowers—particularly in sectors like manufacturing and technology—may face higher financing expenses.

Regional economies with strong trade links to the U.S., such as Singapore and Thailand, could also see elevated borrowing costs, further straining fiscal and monetary policy flexibility.

The Treasury’s failed interventions underscore a broader dilemma: while short-term market stabilization is possible, lasting relief requires addressing the root causes of rising yields. Without meaningful progress on inflation, fiscal discipline, or AI-related capital spending, the upward pressure on borrowing costs is likely to continue, with global markets remaining vulnerable to further volatility. The next steps for policymakers will hinge on whether they can navigate these structural challenges without triggering broader financial instability.

Related: Scott Bessent