Treasury Secretary Scott Bessent's announcement to double the size of the bond buyback program to $4 billion per operation, aiming to reduce longer-term borrowing costs, saw an initial positive market reaction. On Wednesday, the 10-year Treasury note yield dropped to 4.647% and the 30-year bond yield tumbled to 5.196%. These buybacks target 10- to 20-year and 20- to 30-year portions of the market, where a "buyers' strike" has been observed since late June. The increase in buyback operations is set to begin on September 9 and continue through November 4.
Despite these efforts, the effectiveness of Bessent's strategy is being questioned by financial experts. On Thursday, interest rates rebounded, with the 10-year Treasury note yield climbing back to 4.69%. Analysts at Macquarie estimate the U.S. government will need to issue nearly $550 billion in bonds this quarter, dwarfing the $4 billion buyback program. Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, noted that the market remains skeptical that the Treasury can effectively counteract these larger trends. UBS Wealth Management strategists also highlighted that historical government interventions in bond markets have had limited, temporary effects without addressing underlying fiscal, inflation, or supply dynamics.
Critics argue that the fundamental issues driving higher yields, such as burgeoning government debt, heavy borrowing by tech firms for AI data centers, and the Federal Reserve's commitment to fighting inflation, remain unaddressed. The national debt has surged past $40 trillion, and the Congressional Budget Office estimates the annual deficit will exceed $2 trillion this year. Some analysts, like ING, have likened Bessent's $4 billion plan to "rearranging deckchairs on the Titanic" given the scale of the $40 trillion national debt. RSM's chief economist, Joe Brusuelas, suggested that Bessent's actions might be politically motivated and could complicate the Fed's inflation control efforts.
