Treasury Secretary Scott Bessent announced on Wednesday that the Treasury Department will expand its long-dated debt buyback program, increasing the size of Thursday's operation to repurchase 10-year to 20-year securities to $6 billion. This move aims to restrain US bond yields, which have been under pressure. The increase triples the previous $2 billion buyback amounts that were initially penciled in by the Treasury just two weeks prior to the August 19 announcement.
Despite this significant increase, some investors expressed disappointment, as expectations among many had risen for an even larger amount, possibly exceeding $6 billion, with Morgan Stanley strategists calculating a practical cap at $10 billion. Lou Crandall, a senior economist at Wrightson ICAP, had suggested that a range of $5 billion to $6 billion would be a plausible starting point. The current 10-year yields, crucial for US mortgage rates, are now even higher than last month's levels, intensifying the stakes.
The announcement comes just hours before the department's next sale of 10-year notes and a day before a 30-year bond auction. Traders will be closely watching for any further guidance on the program, as the August 19 statement had indicated an updated tentative buyback schedule would be released later and had not clarified how the buybacks would be funded. Market strategists, like Brendan Fagan of Bloomberg, suggest that larger-than-expected operations could initially pull long-end yields lower, though the program's nominal size remains small relative to the overall Treasury market.
The expansion of the buyback program, particularly the surprise August 19 announcement outside the Treasury's quarterly schedule, has signaled a more activist approach to US debt management by Bessent. While long-dated Treasuries initially rallied after the August 19 news, rates across the yield curve have since started rising again. Analysts like Anshul Pradhan and Demi Hu of Barclays Plc noted that the Treasury could leave the maximum size open-ended, such as "at least $4 billion per operation," which would offer flexibility but leave markets without a clear roadmap.
