Treasury Secretary Scott Bessent is anticipated to reveal the extent of the Treasury Department's expanded buyback program designed to restrain US bond yields. Wall Street dealers are closely watching this announcement, which is expected on Wednesday, regarding the size of the operation scheduled for the next day. This move follows Bessent's prior efforts to quell a "fever" in the bond market and address "very low" liquidity in 30-year bonds.
The Treasury's intervention comes after a significant sell-off in long-term Treasuries, which saw the 30-year yield reach 5.337% on August 19th, its highest level since 2007. While yields briefly dipped after an initial buyback announcement, they have since resumed climbing, with 30-year bonds currently around 5.235% and 10-year bonds at approximately 4.704% as of the latest trading.
Market expectations for the September 10th buyback operation suggest the amount could exceed $4 billion. Analyst estimates vary, with Wrightson ICAP projecting $5 billion to $6 billion and Morgan Stanley suggesting an upper limit of around $10 billion. The Treasury previously doubled its planned buyback from $2 billion to $4 billion in August. The scale of this upcoming operation is seen as a crucial market signal, with a larger-than-expected volume potentially lowering long-term yields and impacting other assets.
Bessent clarified that the buyback is not solely about the yield level but aims to align bond prices with economic fundamentals and improve liquidity. Factors continuing to pressure US government debt yields include high government debt exceeding $40 trillion, rising term premiums, higher rates abroad, and competition from corporate bond issuance linked to AI investments. A $6 billion buyback could reduce quarterly net issuance of bonds with maturities over 20 years by approximately 27%, while a $10 billion operation could reduce it by 55%, potentially financed by increasing short-term bill issuance or using Treasury cash balances.
This change in the US Treasury's approach has already influenced financial markets. Following the announcement of an increased long-term bond buyback in August, gold prices rose to $4,525 per ounce, surpassing JPMorgan's forecast of $4,500. Regular bond buybacks could also support risk assets like Bitcoin due to improved liquidity, with macro strategist Mark Connors anticipating monthly operation volumes of $10 billion to $30 billion, potentially driving Bitcoin towards $180,000 after banking restrictions ease.
