Treasury Secretary Scott Bessent recently stated his readiness to expand efforts to buy back costlier debt, indicating that purchases could exceed $4 billion per issue. This follows an earlier announcement to at least double the amount of 10-year, 20-year, and 30-year Treasury bonds bought back from $2 billion to $4 billion, effective from September 9 to November 4. Bessent clarified that the Treasury's actions are meant to signal support during August's thin trading session, particularly for the 30-year Treasury, amidst massive corporate bond issuance and an ongoing Iran conflict.
Bessent also revealed that a new fiscal initiative, focused on consolidation, would be unveiled by the end of the current week or early next week. This initiative, tasked by President Donald Trump to Bessent and Budget Director Russ Vought, aims to address the highest borrowing costs in years and the national debt, which recently surpassed $40 trillion. Bessent expressed confidence that the US would "grow our way out of this" and suggested that peak deficits might have already been reached.
The Treasury's intervention has been met with mixed reactions. While the announcement initially caused long-term yields to plunge, they rebounded, with the 10-year Treasury climbing above 4.7% and the 30-year yield reaching 5.27%. Critics from Nomura and ING described the buybacks as a "band-aid on a bullet hole" and akin to "rearranging deckchairs on the Titanic," respectively. Additionally, investors have begun pricing in higher inflation rates, with the 10-year breakeven rate rising to 2.34%, its highest since June 10, signaling concerns over broader policy implications and the potential for a looser monetary policy from the Federal Reserve. St. Louis Fed president Alberto Musalem, however, maintained that the Fed would independently set monetary policy based on labor market and inflation data, irrespective of debt management or fiscal policy.
