US Treasury Secretary Scott Bessent announced an increase in long-dated debt buybacks to $6 billion, more than double the previous amount of $2 billion. This move was intended to restrain bond yields, which Bessent described as a "fever" in the market. The announcement on September 9th revealed the size of the next day's operation to repurchase 10-year to 20-year securities.
Despite the significant increase, the $6 billion figure disappointed some market participants who had anticipated an even larger amount, possibly up to $10 billion. This led to a rise in 10-year Treasury yields, which are crucial for US mortgage rates. Analysts like Lou Crandall from Wrightson ICAP had suggested a range of $5 billion to $6 billion as a plausible starting point, but acknowledged that larger increases wouldn't be out of character given recent strategy shifts.
The Treasury's increased buyback program, particularly the August 19th announcement to "at least double" the $2 billion size, was a surprise to many, challenging the department's long-held "regular and predictable" approach to debt management. The decision to expand buybacks came after 30-year yields reached their highest levels since 2007. The bond market's reaction highlights the high stakes, as an amount perceived as too low could exacerbate selling pressure, while a very large amount could set a new, high baseline for future operations.
The immediate consequences of this announcement are amplified by its timing, just hours before the Treasury's next sale of 10-year notes and a day before a 30-year bond auction. The buyback's funding mechanism also remains a point of speculation, with dealers assuming funding through more bill issuance, while some speculate about using the Treasury's standing cash balance. Morgan Stanley strategists caution that buybacks cannot be uncapped, estimating a practical ceiling around $10 billion per operation due to funding constraints.
