Core Viewpoint - The recent surge in U.S. Treasury yields and the record $10 billion buyback operation by the U.S. Treasury have raised concerns about the sustainability and demand for U.S. Treasuries, indicating structural imbalances in the market [1][2]. Group 1: Treasury Yield Dynamics - In May, U.S. Treasury yields soared while prices fell, reflecting an oversupply and insufficient demand for Treasuries [1]. - Long-term Treasury yields exceeded 5% for three consecutive days in late May, highlighting a structural imbalance in supply and demand [1]. - The total U.S. national debt has surpassed $36 trillion, increasing by $1 trillion in less than six months [1]. Group 2: Credit Rating and Economic Concerns - The decline of the "American exceptionalism" narrative has led to decreased global confidence in U.S. assets, including Treasuries, with Moody's downgrading the U.S. sovereign credit rating from AAA to AA1 [2]. - The interest expense on U.S. debt has exceeded 10% of GDP, surpassing international warning levels [2]. - The U.S. federal government's deficit rate is projected to exceed 6% in 2024, with a debt-to-GDP ratio over 123%, significantly above the Maastricht Treaty thresholds [2]. Group 3: Buyer Dynamics - There has been a notable decrease in foreign buyers of U.S. Treasuries, with Japan and China reducing their holdings [3]. - The proportion of Treasuries held by foreign governments has dropped from 45% in 2014 to 28% in 2023, indicating a loss of confidence in U.S. creditworthiness [3]. Group 4: Domestic Demand and Federal Reserve Actions - The increasing supply of Treasuries coupled with declining demand has led to rising yields, raising questions about who will purchase these bonds [4]. - The U.S. Treasury has been unable to rely on the Federal Reserve for bond purchases, as the Fed has been reducing its balance sheet from nearly $9 trillion to over $6 trillion since 2020 [4]. - The Fed's monthly reduction of Treasury holdings has been adjusted from $60 billion to $25 billion, limiting its capacity to absorb new debt [4]. Group 5: Fiscal Policy Implications - The introduction of the "One Big Beautiful Bill" tax plan is expected to exacerbate the situation, potentially increasing the national debt by over $2 trillion [5]. - The combination of rising Treasury issuance and soaring yields, along with the uncertainty from high tariffs, has led global investors to seek safer assets, resulting in continued reductions in Treasury holdings [5].