Fu Peng: The U.S. and Japan jointly intervened to push down U.S. Treasury yields, providing valuation support for large tech and AI companies with strong cash flow.

Chief Economist Fu Peng of Xinhuo Group noted that recent joint U.S.-Japan exchange rate intervention has pre-emptively defused the risk of Japan potentially offloading large volumes of U.S. Treasuries, avoiding pressure on long-dated U.S. government bonds. This has caused the scale of long-term Treasury repurchase operations to double, precisely targeting summer short sellers and forcibly suppressing long-term yields and term premiums. Fu Peng believes the U.S.-Japan intervention aims to prevent a debt interest spiral from triggering a collateral liquidity crisis. The joint intervention, paired with hot money inflows, has left short-term rates pegged while long-term rates are artificially suppressed, leading to a significant flattening of the yield curve. Lowered 10-year and 30-year rates provide valuation support for large tech and AI companies with strong cash flow, while reducing the appeal of overseas carry trades and weakening foreign demand for long-dated U.S. Treasuries.