Treasury Secretary Scott Bessent's unexpected announcement to increase bond buybacks has, despite initial skepticism, begun to show a noticeable impact on the bond market. Key market metrics and positioning indicate that his plan to temper US borrowing costs is working. Since Bessent's declaration last week, Treasuries have outperformed equivalent-maturity swaps, leading to the narrowest 30-year spread between the two since February. Benchmark US yields have also decreased after some initial volatility following the government's commitment to at least double its buybacks of longer-dated bonds.
Analysts are noting the emergence of a "Bessent put," which refers to the Treasury's readiness to intervene, providing a potential backstop for long-end bond holders. Jason Williams, head of US rates strategy at Citi, remarked that this new Treasury "put" improves the asymmetry of owning the long end. The market received an additional boost when CNBC reported that the Treasury Department might utilize its cash reserves in the Treasury General Account to fund these increased bond purchases, and from a drop in crude oil prices.
While long-term borrowing costs remain near their highest levels in years, and fundamental factors like structural US budget deficits persist, the market's reaction suggests that yields would be even higher without Bessent's intervention. Padhraic Garvey, regional head of research for ING Groep NV in New York, believes the narrowing swap spreads reflect the possibility of further buyback increases. The 10-year swap spread has compressed by three basis points to around 39 basis points. The 10-year US yield is currently trading near 4.7%, and the 30-year Treasury yield is near 5.2%.
