The U.S. Treasury Department announced an increase in its debt buyback operations, led by Secretary Scott Bessent, aiming to stabilize the bond market. The maximum size of these operations will at least double, from $2 billion to at least $4 billion. This intervention specifically targets the 10- to 20-year and 20- to 30-year portions of the market, which have experienced a "buyers' strike" since late June. The change is set to begin on September 9 and remain in effect through November 4. Following this announcement, the benchmark 10-year note's yield dropped by 5.7 basis points to 4.647%, and the 30-year bond's yield fell by 9 basis points to 5.196%.
The Treasury's stated purpose for this move is to provide greater liquidity support in longer-dated nominal sectors, where there is consistent strong sponsorship from market participants. By being a larger buyer of older, longer-duration debt, the Treasury aims to improve market liquidity, especially for "off-the-run" securities that become less liquid over time. This can free up institutional balance sheets to purchase more liquid new issues, potentially putting downward pressure on rates. The move comes as the bond market has been grappling with factors such as a higher term premium and increased supply of corporate debt, particularly from AI-related "hyperscalers" borrowing heavily.
While the announcement caused an immediate drop in bond yields and a rise in stock market futures, some analysts express skepticism about its long-term impact. Krishna Guha, head of global policy at Evercore ISI, noted that while the operation might "crowd in potential buyers" and discourage future short-selling, it "changes almost nothing in terms of the fundamentals," especially the continued need to finance large government deficits and "hyperscaler" debt. Economist Mohamed El-Erian commented that the planned purchases are "small in both absolute terms and relative to net issuance" and resemble "yield curve control." Joe Brusuelas, chief economist at RSM, suggested the move could complicate the Federal Reserve's efforts to control inflation, as it might artificially suppress yields, potentially making it harder for Fed Chairman Kevin Warsh to achieve a 2% inflation target.
The intervention by Treasury Secretary Bessent is seen by some as a high-stakes effort to contain rising long-term yields, which have pushed the 10-year yield to as high as 4.74% and 30-year mortgage rates to around 6.75%. The federal government's public debt has also reached $40 trillion for the first time. However, market experts like Jim Bullard, former president of the Federal Reserve Bank of St. Louis, believe the move, while "a little bit unexpected," does not alter the fundamental issues of large fiscal deficits and a cautious Federal Reserve, which are the primary drivers of higher longer-term yields. Some investors also worry that Washington's increased role in managing borrowing costs could weaken faith in the dollar.
