US Treasury Secretary Scott Bessent is actively working to reduce long-term borrowing costs, which have reached multi-year highs. The Treasury Department announced it will at least double the size of its liquidity support buyback operations for securities ranging from 10-year to 30-year maturities, just two weeks after releasing its initial buyback schedule for the quarter. This move aims to rein in rising Treasury yields and the strengthening dollar.
The yield on the 30-year U.S. Treasury bond recently peaked at 5.33%, a level not seen in 19 years. This surge is attributed to several factors, including the normal laws of supply and demand, increased sovereign debt loads, and a rise in AI-related corporate bond issuance, which competes with government debt for capital. Lingering inflation anxiety, especially tied to energy costs, also plays a role, impacting central bank policy expectations.
Total U.S. government debt recently surpassed $40 trillion, more than doubling over the past decade, with about $32 trillion held by the market. This significant increase in debt, coupled with questions around fiscal credibility, has contributed to investor caution. The 30-year bond is also considered a less liquid area of the Treasury market and is highly sensitive to shifts in sentiment regarding fiscal sustainability.
While some investors are buying the dip in long-dated Treasuries, evidenced by significant inflows into ETFs like iShares 20+ Year Treasury Bond ETF (TLT), others are moving into shorter-term and intermediate-term bonds, or other fixed-income products, due to the volatility and perceived risk. ETFs tracking long-dated Treasuries, such as TLT, Vanguard’s Long-Term Treasury Index Fund ETF Shares (VGLT), and State Street SPDR Portfolio Long Term Treasury ETF (SPTL), have seen year-to-date declines of approximately 6%, 4.9%, and 5.2% respectively.
Analysts like Harvey Bradley of BNY Insight Investment and Ross Pamphilon of Impax Asset Management point to fiscal sustainability in the US and other developed markets as a core problem. Michal Stanczyk of Allspring Global Investments emphasizes that the real question is not whether the Treasury can sell the debt, but what yield investors will demand for absorbing a growing stock of duration. While buybacks signal policymakers' discomfort with rising borrowing costs, fiscal consolidation or a period of weaker growth and inflation are seen as the primary drivers that could sustainably lower long yields.
