US public debt has hit $40 trillion for the first time, surging by a third in less than five years. This milestone was announced on the same day the Treasury Department, led by Secretary Scott Bessent, revealed plans to at least double its government debt buybacks, targeting longer-dated debt to manage borrowing costs. The buyback operation, set to run from September 9 to November 4, was initially slated for $4 billion but could potentially be larger.
Initially, long-dated Treasury yields, particularly the 30-year bond, saw a significant drop following the announcement, with the 30-year yield falling about 10 basis points after reaching a 19-year high. However, this rally was short-lived, with yields climbing higher the next day as the market digested the intervention and the underlying structural issues. For instance, the 10-year US Treasury yield increased by more than 5 basis points to 4.704%, and the 30-year US Treasury bond yield rose by over 5 basis points to 5.248%.
Analysts like Ven Ram of Bloomberg and Maia Crook of JPMorgan Chase expressed skepticism about the long-term effectiveness of the buybacks. Ram suggested it was a "band-aid over a bleeding artery" that wouldn't address fundamental issues like uncontained inflation (core PCE at 3.3%, up from 2.8% last year) and persistent deficits. Crook noted that such interventions could lead to higher risk premiums, moving away from the Treasury's "regular and predictable" tenet. Sophie Huynh of BNP Paribas Asset Management commented that the move shows a willingness to cap the yield curve and could reinforce short-term risk-taking, potentially leading to a dollar bullish environment despite initial dollar weakness. The Federal Reserve is in a tight spot, with divided opinions on rate hikes, especially after recent jobs data, suggesting inflation will remain a problem. Bitcoin rallied to nearly $72,000 a coin and gold to $4,500 an ounce, indicating broader market implications.
