U.S. Treasury Secretary Scott Bessent stated that the government's bond buyback program could be expanded beyond the $4 billion per operation ceiling announced just a day earlier. In a CNBC interview, Bessent said, "We're going to increase the size of the buyback... it could be more than the $4 billion per issue." This remark followed the Treasury's Wednesday announcement to at least double the maximum size of its liquidity support buyback operations for longer-dated nominal coupon securities, increasing the per-operation ceiling from $2 billion to at least $4 billion for securities in the 10-to-20-year and 20-to-30-year sectors, with enlarged operations running from September 9 through November 4.
The initial announcement on Wednesday had caused a brief easing in yields, with the 30-year bond dropping significantly. However, by Thursday, much of this decline had reversed, with the 30-year yield trading around 5.235% and the benchmark 10-year yield up about 5 basis points to 4.704%. Bessent noted that the level of yields did not factor into the buybacks decision, emphasizing a focus on fundamentals. He also mentioned that the expansion of buybacks would depend on market conditions, declining to attach a specific figure.
Analysts, such as those at Jefferies, expressed skepticism, arguing that against a $32 trillion market, the additional purchases were too small to significantly alter the supply-demand balance. Evercore ISI analyst Krishna Guha called the plan "a weak form of Operation Twist" and suggested it would have "little enduring impact," potentially backfiring if perceived as a sign of concern over funding ability. Guha further stated that Bessent's appearance had "minimal impact" on the bond market.
Bessent's objective, as he explained, is to support liquidity in a thinly traded area of the market, particularly in August, when there's significant corporate issuance. He indicated that the Treasury aims to signal that current yields do not reflect underlying fundamentals, especially in light of the Iran conflict. This marks another "increasingly interventionist maneuver" by Bessent, who has extensive experience in sovereign debt and currency markets, and who executed a joint intervention in the Japanese yen earlier in the month.
Despite Bessent's efforts, market skepticism remains. Jefferies' chief U.S. economist, Thomas Simons, criticized the timing of the buyback announcement, noting that it broke with the Treasury's long-held strategy of "regular and predictable" announcements made during quarterly refunding plans. Simons suggested that this deviation reduces the overall credibility of the Treasury's guidance and that the "sloppy wording" of the release gave the impression of a hastily made decision. There are concerns that efforts to suppress longer-end yields could inadvertently prompt investors to demand even higher compensation.
