Aegon Asset Management continues to hold a firm position that the spread between short-term and long-term US borrowing costs will keep widening, even as Treasury Secretary Scott Bessent attempts to suppress long-dated bond yields.

The US Treasury announced Wednesday it would at least double the size of its liquidity support repurchase operations for 10- to 30-year Treasuries, raising the single-operation cap from $2 billion to a minimum of $4 billion. Bond markets responded positively to the news, with the 10-year Treasury yield falling 6 basis points to 4.65% and the 30-year yield dropping nearly 10 basis points to 5.18%. This came after the 30-year yield had breached 5.33% the previous trading day, marking its highest level since 2007.

However, James Lynch, portfolio manager at Aegon, views the expanded long-dated Treasury buyback program as having "limited significance" and says it does not alter his outlook that yield curves in both the US and Europe will continue to steepen. Data on Treasury yield curve flattening following the announcement shows Aegon's Absolute Return Bond Fund has outperformed 80% of its peers over the past month. Lynch notes that one of his successful strategies has been betting on the 30-year Treasury yield rising faster than the 5-year yield, based on "multiple structural factors."

"The fiscal issues—the massive deficit, the impact of hyperscale corporate debt flooding the market, inflation still running above target, and unclear communication from the Fed—all inject an additional premium into the market. I don't see these factors disappearing anytime soon," Lynch said.

Globally, steepener trades are gaining increasing favor among hedge funds and other asset managers. The core logic is that as government bond supply continues to expand, long-term yields must rise further to attract sufficient buyers. Long-dated bonds have become a major focus for investors, with persistent inflationary pressures on one hand, and on the other, a debt-driven AI boom causing governments to compete for buyers in the same market as highly-rated, large-scale financing technology giants, or "hyperscalers."

The US 30-year Treasury yield has now surpassed 5%, reaching its highest level in nearly two decades. Meanwhile, short-term yields have seen narrowing gains over the past month as market signals suggest the Fed is in no hurry to raise rates.

Aegon's bond fund, valued at £165 million (approximately $225 million), has delivered a year-to-date return of 2.36%, with gains coming from short-dated bond allocations, active duration management, and steepener trades. Lynch adopted the US Treasury steepener strategy as early as mid-June. He is also betting that European and UK long-dated bonds will underperform their short-dated counterparts. He is considering gradually converting his steepener positions into direct holdings of long-dated bonds heading into 2027, though he remains cautious about timing direct bets on bond price appreciation.

"Things are a bit messy right now, but I think this could be a good opportunity to go long," Lynch said. "Unfortunately, no one rings a bell to tell you, 'Yes, now is the time to buy.'"

Wall Street's take on the Treasury's new buyback policy? The US Treasury's intervention triggered a rebound in the bond market. Nevertheless, opinions on Wall Street remain divided regarding this buyback adjustment.

JPMorgan Chase states outright that the Treasury's expanded buyback program only addresses symptoms, not root causes. Strategists including Jay Barry at JPMorgan Chase point out that this operation essentially deals with the "symptom" of rising long-term yields without tackling the fundamental issue—with the US economy near full employment and the fiscal deficit still hovering around 6% of GDP, persistently high financing needs are the core driver pressuring long-term rates. The bank warns that if the Treasury becomes more "opportunistic" in debt management and further deviates from traditional "regular and predictable" issuance principles, investors may demand higher term premiums, ultimately pushing up long-term financing costs. JPMorgan Chase projects the US financing gap will exceed $3.5 trillion over the coming fiscal years, and unless substantial fiscal consolidation is pursued, the impact of this buyback adjustment on long-end rates will likely be temporary.

Barclays PLC believes that while the actual market impact is limited, the policy signal should not be overlooked—investors now clearly understand that the US Treasury is willing to adjust its issuance structure if long-term yields continue to rise. Going forward, the Treasury could further increase buyback sizes or explicitly reduce long-dated bond issuance at the November financing meeting. However, citing Japan's experience, the bank cautions that compressing long-dated bond supply only buys time. After Japan reduced its super-long bond issuance in 2025, the 40-year yield initially fell about 50 basis points before hitting new highs again. True resolution ultimately requires fiscal consolidation.

In contrast, Citigroup takes a more positive stance. The bank recommends buying 20-year US Treasuries, believing the Treasury's move is intended to limit upward pressure on long-end yields, and judges that with cooling inflation, the bond market has strong rebound potential in the coming months.

From Aegon's firm bet on steepening, to JPMorgan Chase's warning that the policy is merely treating symptoms, to Citigroup's optimistic positioning, the market's battle over the direction of US Treasury rates is far from settled.