US Treasury Secretary Scott Bessent's department made a fresh attempt to control long-term borrowing costs, which had been at multi-year highs. On Wednesday, the Treasury Department announced an increase, by at least double, in the size of its liquidity support buyback operations for securities ranging from 10-year to 30-year durations. This surprise move, coming just two weeks after the release of the planned buyback schedule for the quarter, led to a sharp decrease in Treasury yields and the dollar.
The announcement significantly impacted the market. The benchmark 10-year note closed down 5.7 basis points to 4.647%, and the 30-year "long" bond tumbled 9 basis points to 5.196%. Yields and prices move in opposite directions, so the price of these bonds rose. Stock market futures also rose sharply following the news, with the S&P 500 closing up 0.2% and the Nasdaq Composite up 0.16%. The change in operations is scheduled to begin on September 9 and continue until November 4, effectively positioning the Treasury as a larger buyer of older, longer-duration debt.
Analysts offered mixed reactions. Krishna Guha, head of global policy and central bank strategy at Evercore ISI, suggested the move could encourage buyers and deter future short-selling, though he emphasized it doesn't fundamentally alter the need to finance large government and hyperscaler debt. However, Joe Brusuelas, chief economist at RSM, criticized Bessent's actions as a "political actor" focused on short-term gains rather than price stability, potentially complicating the Federal Reserve's efforts to control inflation. Economist Mohamed El-Erian described the planned purchases as "small in both absolute terms and relative to net issuance," suggesting they were more about "yield curve control" than fundamental change. He also noted the purchases could bring down mortgage rates in the short term but warned of potential "collateral damage and unintended consequences."
The Treasury's decision indicates its attention to liquidity issues at the longer end of the market and its willingness to be a more active participant. The government's buyback maximum will increase from $2 billion to at least $4 billion. Secretary Bessent later stated the operations could exceed $4 billion per issue, depending on market conditions. This action was taken as the 30-year Treasury yield recently hit its highest level since 2007, and outstanding public debt reached $40 trillion, raising concerns about increasing interest costs for the federal government.
