The US Treasury Department announced it is doubling its efforts to buy back Treasury securities with maturities between 10 and 30 years, increasing the amount to $4 billion per operation. This move, initiated by Treasury Secretary Scott Bessent, aims to address sharply rising long-dated Treasury borrowing costs, which have negatively impacted global credit affordability. The announcement immediately helped to bring bond yields down.
This action has generated discussion among financial experts about whether the Treasury or the Federal Reserve is now the more significant influencer of general credit conditions. David Russell, global head of market strategy at TradeStation, noted that with Fed Chairman Kevin Warsh desiring to speak less and Bessent's recent actions, the "center of gravity could be moving from the Fed to the Treasury."
Despite the Treasury's intervention, market participants generally do not see a case for immediate Fed involvement. Gennadiy Goldberg, Head of U.S. Rates Strategy at TD Securities, stated that the bar for the Fed to step in with market-stabilizing purchases is "very high" and would require signs of enormous liquidity deterioration and market dysfunction, which are not currently present. Michael Feroli, chief U.S. economist at J.P. Morgan, also believes the Fed's ability to control short-term interest rates remains unaffected.
The expanded buyback program targets debt that significantly influences real-world borrowing costs, such as those for mortgages and corporate loans. While Fed asset buying could potentially lower these yields or cap their rise with more firepower than the Treasury, such a move would be akin to an easing of monetary policy. This would conflict with the Fed's ongoing efforts to reduce inflation, which remains well above its 2% target, making direct intervention by the Fed unlikely at this time.
