Treasury Secretary Scott Bessent has doubled the size of the Treasury's long-dated bond buybacks, increasing them from $2 billion to at least $4 billion per operation. This move, which includes spanning 10- to 20-year and 20- to 30-year government debt maturities, is intended to address concerns about thin trading and high yields in the long end of the Treasury market. The announcement initially caused 10-year Treasury yields to drop by 8 basis points, but these gains largely unwound the following day, with 10-year yields closing the week near 4.73%.
Bessent's intervention is seen by some as a signaling device, as the $2 billion increase is small compared to the $32 trillion total Treasuries market. Analysts, including Robin Brooks from the Brookings Institution, suggest this action attempts to manipulate the yield curve without addressing underlying fiscal deficits. To finance these buybacks, the Treasury will issue more short-term bills, which has led to a steepening of the short end of the yield curve. The market's initial reaction also included a weakening dollar and substantial gains in commodities like gold and Bitcoin, signaling concerns about dollar debasement.
This move puts the Treasury directly at odds with Federal Reserve Chair Kevin Warsh. Warsh has maintained a stance of limited guidance, aiming for the market to lead price discovery. He has also proposed updating the 1951 Treasury-Fed Accord to give the Treasury more authority over the Fed's balance sheet, but his existing plans to reduce the Fed's overall holdings and shift towards short-term debt would likely push up long-term Treasury yields, directly counteracting Bessent's goals. While Bessent seeks to lower borrowing costs, Warsh has indicated that markets should respond as they see fit, suggesting he endorses the rise in yields.
