US Treasury Secretary Scott Bessent's efforts to increase debt buybacks are generating unease on Wall Street. Strategists are questioning the Treasury's interventionist stance, which has seen the long-dated buyback cap increase to at least $4 billion per operation. This move, while intended to curb rising bond yields, is seen by some as a sign of concern over market stability and could lead to unforeseen consequences, including potential distortions in the bond market and increased future supply pressure.
The expanded buyback program follows a surge in long-term Treasury yields to a 19-year high, prompting the Treasury to act to reduce borrowing costs for consumers and corporations. Bessent has signaled a willingness to further expand these buybacks beyond the current $4 billion target. The market is closely watching the Treasury's actions, with an announcement expected on September 8 regarding the maximum amount of 10- to 20-year Treasury bonds to be repurchased, and an exact amount purchased under the May 2024 program to be disclosed on September 10.
Adding to the market's anxiety is the upcoming deluge of both corporate and government bond issuance. Bank of America forecasts US investment-grade corporate bond issuance of $190 billion in September, while a Bloomberg dealer survey suggests this could reach $215 billion, potentially exceeding last year's record of $207.5 billion. Simultaneously, the Treasury plans to auction $39 billion of 10-year notes on September 9 and $22 billion of 30-year bonds on September 10. This confluence of high supply and the Treasury's aggressive buybacks has led analysts to describe the current state of Treasury yields as "the calm before a storm," with Standard Chartered's Thomas Kikis warning of disruption through Christmas.
