Treasury Secretary Scott Bessent's expanded buyback program for older US government securities, aimed at quelling a "fever" in the bond market, has created anticipation among Wall Street dealers. The Treasury Department is set to announce on Wednesday the size of its upcoming operation to repurchase 10-year to 20-year securities, with past precedents indicating an 11 a.m. announcement. This will be the first such release since the Treasury's August 19 surprise announcement to "at least double" the $2 billion sizes it had previously penciled in.
Bessent has declined to specify the size of the September 10 buyback, but his remarks have led to expectations that it will exceed $4 billion. If the buyback comes in at just $4 billion, it could disappoint investors and add to selling pressure in the bond market. Conversely, a larger total, with Morgan Stanley calculating $10 billion as a practical cap, could set a new baseline for future longer-dated buybacks and suggest increased concern from Bessent regarding yield levels.
Analysts like Lou Crandall from Wrightson ICAP suggest a plausible starting point of $5 billion to $6 billion, though even larger increases are not out of character given recent strategic shifts. The news on Wednesday is particularly significant as it precedes the department's sale of $39 billion in 10-year notes and a $22 billion 30-year bond auction. The buyback expansion, announced outside the Treasury's usual schedule, indicates a more activist approach to US debt management, departing from its traditional "regular and predictable" mantra. This move followed 30-year yields reaching their highest levels since 2007.
Factors contributing to rising borrowing costs include the risk of central bank policy tightening to combat inflation and concerns over fiscal deficits. While bond markets have been relatively stable, any surprise in the buyback size or cadence is more likely to impact 30-year swap spreads than outright yields, as spreads more directly reflect supply shifts while broader macro forces drive bond prices globally. The dollar is also nearing a seven-month low as traders await the buyback announcement and inflation data, with the yen rallying and extending its monthly gain to about 4%.
