Stocks bounce, bonds end a rough week

Stocks rebounded on Friday. The Dow Jones Industrial Average rose about 1% to close at 53,276.81, while the S&P 500 and the Nasdaq Composite each added 0.4%, finishing at 7,674.31 and 26,180.46. The bounce was not enough to rescue the week, and all three indexes still ended below where they started it, because a sell off in government bonds put pressure on stocks for most of the week. Bitcoin was the outlier, jumping about 6% on Friday to roughly $77,065 and posting its best week in two years.

The story this week was in the bond market, not the stock market. When investors sell US government bonds, the price of those bonds falls, and because a bond pays a fixed dollar amount every year, paying a lower price for it means earning a higher percentage return. That return is the yield. So a bond sell off and rising yields are the same event described two different ways.

Yields on the 30-year Treasury, which is the longest standard loan the US government takes out, reached their highest levels since 2007 this week. Two things pushed them there. The first is supply, because the national debt crossed $40 trillion and investors want to be paid more to absorb an ever larger pile of borrowing. The second is inflation, because crude oil sits near $86 a barrel after President Trump threatened a major economic campaign against Iran, and costlier oil raises the price of nearly everything that has to be moved or manufactured. Lenders demand extra yield to protect themselves through an inflationary stretch.

Midweek the Treasury tried to push back. Treasury Secretary Scott Bessent announced that the government would double the size of its bond buybacks, raising the maximum from $2 billion to at least $4 billion per operation and doubling how often it runs them, targeting bonds with 10 to 30 years left to run, from September 9 through November 4. A buyback is the government spending cash to purchase its own outstanding debt back from investors, which adds a buyer to the market, supports prices, and therefore pushes yields down. It worked for a moment. The 30-year yield fell from about 5.34% to around 5.18%. Then it faded, and the yield climbed back to roughly 5.24% by Friday.

The reason it faded is scale. A few billion dollars per operation is very small against a Treasury market worth about $30 trillion, so analysts read the announcement as a signal that the government is watching rather than as a real change in the supply of and demand for bonds. Evercore ISI questioned how long the relief could last given the wave of existing debt that has to be refinanced, and Jefferies called the move a shot from the hip because the Treasury normally prizes being predictable above all else. Friday's stock gains came mostly from the bond market simply being calmer, not from anything being fixed.