Bond investors are preparing for potentially sharper price swings across all maturities, as a slate of upcoming catalysts threatens to roil both short- and long-dated debt. Following last week's turbulent sessions, traders returning from the Labor Day holiday are zeroing in on two key events on this week's calendar that could shed light on the policy intentions of Treasury Secretary Scott Bessent and Federal Reserve Chair Kevin Warsh.

On Wednesday, the Treasury Department is slated to unveil details of a bond buyback operation, with execution set for the following day. Under the expanded repurchase program, the purchase size is expected to be at least double the previous cap, with market participants anticipating a three- to five-fold increase. Then, on Friday, the latest inflation data is due. Warsh and his colleagues have signaled that these figures are critical in determining whether the Fed will raise interest rates later this month. These two factors are poised to inject significant volatility into the holiday-shortened trading week, as investors juggle competing forces influencing U.S. monetary and fiscal policy—with monetary policy typically steering short-term yields and fiscal policy focused on keeping longer-term borrowing costs in check.

Last Friday, stronger-than-expected August employment growth flattened the yield curve, pushing short-term yields higher while long-term yields held steady. Traders also boosted bets on a Fed rate hike this month, although uncertainty surrounding the Treasury's and the Fed's policy paths has tempered those expectations. The jobs report "was just an appetizer; the main course is the inflation data due September 11," said Tim Musial, head of fixed income at CIBC Private Wealth. Meanwhile, the Treasury's buyback program, unlike fundamental drivers such as growth and inflation, "is a hard-to-predict challenge. In this environment, you might want to take on a bit less risk."

The expanded bond buyback plan caught investors off guard, as it was announced outside the Treasury's regular quarterly schedule. This comes with 30-year Treasury yields near their highest levels since 2007, hovering around 5.25% as of Friday. Bessent's decision to enlarge the buyback program could have significant implications for the long-end of the bond market. The Treasury's announcement indicated that repurchase amounts would be "at least doubled" relative to the previous $2 billion cap, leaving Bessent with some flexibility. If the buyback exceeds $4 billion, it could provide a boost to bond prices. In the meantime, Warsh remarked at Jackson Hole last month that "price stability should be the Fed's primary focus right now."

Economists project August consumer price inflation at 3.4% year-over-year, with the core gauge, which strips out volatile food and energy categories, rising 2.4%. As of Friday, swap market pricing implied roughly a 60% probability that investors expect a 25-basis-point rate hike this month. The Fed's next scheduled rate decision is set for September 16.