Treasury Secretary Scott Bessent's recent efforts to curb rising U.S. Treasury yields through expanded buyback operations have largely been ineffective. While an announcement of doubling buybacks initially caused a brief dip in yields, the effect quickly faded. Experts widely view these buybacks as a liquidity measure rather than a solution to elevated borrowing costs, with many expressing skepticism that the approximately $4 billion per operation would be substantial enough in such a large market. The move has been characterized as a "weak form of Operation Twist" by some analysts, suggesting it will have little lasting impact.
Critiques of Bessent's approach include the buybacks not reducing overall borrowing requirements, as the Treasury must issue short-dated debt to repurchase long-dated securities. This changes the composition of debt but not the total amount needing financing. Furthermore, the timing of the announcement, outside the Treasury's regular quarterly refunding plans, has been criticized for breaking with its "regular and predictable" communication strategy, potentially reducing the credibility of its guidance.
The underlying reasons for the sustained increase in long-term yields, such as growing deficits, higher borrowing needs, inflation expectations, rising term premiums, and increased competition from corporate bond issuance, remain unaddressed by the buybacks. Some analysts also point to external factors like attractive yields in other sovereign markets and a correlation with oil prices fueling inflation fears. There is a prevailing sentiment that investors are demanding a higher risk premium due to the escalating levels of U.S. Treasury debt and uncertainty regarding future Federal Reserve policy.
Some suggest that if investors perceive the buybacks as an attempt to artificially suppress borrowing costs or as a form of debt monetization, risk premiums could actually increase further. The policy change also led to a depreciation of the dollar and a rise in gold prices, which could exacerbate inflationary pressures. While buybacks can improve market functioning and liquidity, they are not seen as capable of altering the fundamental drivers of higher long-term Treasury pricing, particularly the structural forces pushing term premiums higher.
