Despite recent interventions by US Treasury Secretary Scott Bessent aimed at easing pressure on the bond market, long-term US bonds have continued to slide. Bessent's department had announced an increase in government debt buybacks, targeting the 10- to 20-year and 20- to 30-year segments of the market, doubling the maximum size of operations from $2 billion to at least $4 billion. This move was intended to provide liquidity and stabilize yields after they surged to a 19-year high.
Initially, yields on benchmark bonds tumbled following the announcement, with the 10-year note closing down 5.7 basis points to 4.647% and the 30-year bond falling 9 basis points to 5.196%. However, this relief was short-lived as the underlying market angst persisted. Wall Street traders and strategists interpret Bessent's actions as a signal of his eagerness to prevent bond yields from spiking further, which has been driving up costs for consumers and corporations.
Several factors are contributing to investor unease, including a higher term premium demanded for holding government debt, a shifting profile of Treasury buyers, and an increased supply of corporate debt, particularly related to artificial intelligence. Inflation fears, exacerbated by oil prices hitting $100 a barrel due to the war with Iran, also play a significant role. Some economists, like Joe Brusuelas of RSM, suggest Bessent's moves are short-term political actions aimed at the upcoming election, rather than a focus on long-term price stability. Mohamed El-Erian commented that the planned buybacks are "small in both absolute terms and relative to net issuance" and more indicative of "yield curve control."
Treasury officials indicated that the increased buyback operations, which will run from September 9 through November 4, reflect a desire to support liquidity in longer-dated sectors where there's strong demand. However, analysts like Krishna Guha of Evercore ISI, while acknowledging the potential to deter short-selling, caution that these operations do little to address the fundamental issues of large government deficits and the "tidal wave of hyperscaler debt." Peter Boockvar of One Point BFG Wealth Partners clarified that this is a rearrangement of the maturity schedule, not a debt paydown, highlighting that the core issues driving market anxiety remain unaddressed.
