Wall Street is on edge as Treasury Secretary Scott Bessent's attempts to cool the bond market by increasing debt buybacks coincide with an expected deluge of new bond issuance. Following the Labor Day holiday on September 8th, markets are bracing for a period of potential volatility, with analysts describing the current environment as the "calm before a storm." This concern stems from the large volume of both corporate and government bonds set to hit the market, which could dilute demand for Treasuries and further push up yields.
Bessent's recent moves have been interpreted by Wall Street traders and strategists as an urgent effort to prevent bond yields from climbing even higher, especially after long-term rates reached a 19-year high. Just two weeks prior, the Treasury Department announced a doubling of its liquidity support buyback operations for 10-year to 30-year securities. Bessent has indicated that the bond repurchase program could be even larger than the initial $4 billion per operation.
Despite these efforts, the yield on the 10-year Treasury note, a crucial benchmark for mortgage rates, rebounded to 4.69% on Thursday. This is nearly where it stood before Bessent's surprise announcement of the doubled buyback program, which increased the size from $2 billion to $4 billion per operation. Wall Street remains concerned about burgeoning government debt, heavy borrowing by tech firms, and the Federal Reserve's commitment to fighting inflation, suggesting that Bessent's measures have not yet had the desired calming effect.
The upcoming period will see significant bond issuance. Bank of America forecasts U.S. investment-grade corporate bond issuance of $190 billion in September, while a Bloomberg dealer survey suggests this figure could reach $215 billion, potentially exceeding last year's record of $207.5 billion for the month. The Treasury will also auction $39 billion of 10-year notes on September 9th and $22 billion of 30-year bonds on September 10th. Thomas Kikis, head of U.S. markets at Standard Chartered, anticipates market disruption from after Labor Day through Christmas.
