Treasury Secretary Scott Bessent's efforts to curb rising long-term borrowing costs received a mixed reaction as the Treasury Department announced it would increase the size of its bond buyback operations to $6 billion, more than double the previous $2 billion. This move comes after Bessent surprised markets on August 19 by stating the program would "at least double," leading to expectations among some investors that the amount could be as high as $10 billion. The buybacks target 10-year to 30-year bonds, intended to reduce supply and boost prices, thereby lowering yields.
Despite the significant increase, the initial market response was muted, with the yield on the 10-year Treasury note rising to 4.69% on Thursday, nearly matching its level before the buyback announcement. This suggests that Wall Street remains concerned about factors like burgeoning government debt, heavy borrowing by tech firms, and the Federal Reserve’s commitment to combating inflation. The increase to $6 billion was higher than some analysts' expectations, such as Wrightson ICAP's Lou Crandall who estimated a plausible starting point of $5 to $6 billion, but fell short of the $10 billion practical cap calculated by Morgan Stanley.
Bessent characterized the initiative as an attempt to quell a "fever" in the bond market, aiming to push things back towards equilibrium without believing he could change the equilibrium price. However, the relatively tepid market reaction indicates that while the buyback program is a step, it might not be large enough to fundamentally shift the current upward trend in yields driven by broader macroeconomic forces. The Treasury's approach has been described as a new, more activist style of US debt management, deviating from its long-held mantra of being "regular and predictable."
