US Treasury Secretary Scott Bessent has been actively implementing measures to address the surge in long-term borrowing costs, which saw Treasury yields reach multi-year highs. On August 19, the Treasury Department announced it would at least double its "liquidity support buyback operations" for securities in the 10-year to 30-year sector, with these operations commencing on September 9. This move, which increased the size of individual buyback operations from $2 billion to $4 billion, initially caused long-dated Treasuries to rally, pushing the 10-year yield down by approximately 4 basis points to 4.69% and the 30-year yield to around 5.23%.
However, the market's positive reaction was short-lived, as yields quickly began to climb again the following day. This prompted speculation that the Treasury might tap its cash reserves in the Treasury General Account (TGA), which held about $935 billion as of August 20, to fund even larger buybacks. While Bessent refrained from confirming additional measures on August 24, the mere report of such a possibility further pushed down the 10-year yield by another 4 basis points. Analysts from Morgan Stanley estimate that $80 billion to $200 billion of the TGA could be considered "excess" cash available for buybacks.
Despite these efforts, some market participants express skepticism about their long-term impact. Critics, including Citadel Securities, label the actions as "financial repression," warning of potential dollar weakening and increased inflation if investors perceive a prioritization of lower borrowing costs over fiscal discipline. They also highlight that the scale of the buybacks, even at $4 billion per operation, is relatively small compared to the $32 trillion in outstanding Treasury debt, suggesting they are more technical interventions than fundamental shifts in supply and demand. The concern is that overly aggressive intervention could lead investors to demand a higher term premium for US debt, undermining the very goal of reducing borrowing costs.
Adding to the market's apprehension, the rapid and unannounced changes to debt management strategies, such as increasing buyback sizes just two weeks after a quarterly schedule was released, risk eroding the Treasury's "regular and predictable" image. This could potentially compel investors to demand higher premiums for longer-dated Treasuries to account for increased uncertainty. Furthermore, the persistent weakening of the dollar and rallies in gold and Bitcoin following Bessent's bond moves reinforce a "debasement trade" narrative, fueled by swelling US deficits and concerns about the overall direction of US economic policy.
