The Reserve Manager Radar: What to Watch as Markets Enter the Final Quarter of 2026

All eyes are on the US Treasury market, and rightly so given its enormous influence on global financial markets. The Treasury Department’s surprise announcement of expanded long-end buybacks risks creating the perception of a reaction function around long-term borrowing costs.¹ US Treasury Secretary Scott Bessent’s comments have reinforced that perception, indicating that purchases could be increased further while arguing that prevailing yields don’t adequately reflect economic fundamentals. His latest call for a more aggressive economic campaign against Iran, against the backdrop of renewed tariff tensions, adds yet another source of potential inflation pressure and uncertainty for the Treasury market.² If the market continues to demand higher yields despite those efforts, in our view, the disagreement between the Treasury and the marginal buyer will become increasingly relevant for price discovery, term premium and investor confidence.

This is happening as increased Treasury supply meets a more valuation-sensitive buyer base. Foreign official demand has been broadly flat over the past decade even as the Treasury market has expanded considerably, leaving a larger share of incremental supply to private investors.³ With government financing needs still large, Treasury duration now has to compete more directly with alternatives such as agency mortgage-backed securities and a growing supply of high-quality corporate debt.

The behavior of the US dollar also bears close monitoring. It weakened following the buyback announcement even as the initial rally in long Treasuries faded, raising a broader question about where market adjustment takes place if investors begin to expect a policy response when pressure at the long end becomes uncomfortable. Some of the adjustment that might otherwise occur through yields could migrate into the dollar itself.⁴

That still falls well short of making the case for structural dollar debasement. The depth of US capital markets, the dollar’s role in trade and financing, and the absence of an alternative with comparable depth and scale remain powerful anchors. Gradual diversification may continue, but a weaker dollar and a loss of reserve-currency status are very different propositions.

Looking ahead, there’s plenty of discussion about what the November US midterms might bring in terms of constraints around broader economic and foreign policy. A divided government could make major fiscal legislation more difficult and limit the scope for further deficit-financed initiatives. Trade and foreign policy, however, would still leave substantial scope for executive action. More importantly for markets, stronger institutional constraints could improve policy predictability at the margin, but they’ll have limited impact on reducing the existing debt stock or Treasury’s financing needs.

Interestingly, gold has remained resilient despite elevated real yields, but this shouldn’t come as a surprise. Some central banks have been increasing domestic storage to strengthen control and access in stressed conditions, while others continue diversifying storage locations to preserve access to international market infrastructure. We expect this dynamic to continue, with 89% of respondents to the 2026 Central Bank Gold Reserves Survey expecting global official holdings to increase over the next 12 months and a record 45% expecting their own institutions to add to reserves.⁵

Putting these observations into the context of portfolio positioning, short-duration, highly liquid assets should remain a focus for reserve managers in this environment. While higher developed-market government-bond yields appear attractive, current yields may not represent a durable clearing level simply because they’re high relative to recent history. We see money-market instruments in particular providing liquidity and optionality while allowing income to adjust more gradually, especially in a scenario where policy rates decline.

We believe recent developments in foreign exchange markets strengthen the case for currency diversification at the margin, but not for a wholesale retreat from dollar assets. The structural advantages supporting the dollar remain substantial even as the currency becomes more vulnerable to periods of fiscal and policy uncertainty.

For reserve managers able to hold credit, we believe the larger investment-grade issuance calendar should create opportunities, but the hurdle for adding risk should remain high. Higher-quality spread sectors may offer better entry points as concessions widen, but unstable sovereign yields and heavier supply give investors little reason to reach for incremental spread. The additional compensation should be sufficient to absorb liquidity, downgrade and mark-to-market risk.