The US government's recent debt buyback operation, led by Treasury Secretary Scott Bessent, fell short of investor expectations, exacerbating a market selloff and pushing borrowing costs to multiyear highs. The Treasury Department bought $5.19 billion of debt maturing in 10 to 20 years, which was less than the previously announced maximum of $6 billion. This disappointing outcome intensified the market's unease, especially after yields had already been rising in anticipation of the buyback.
Following the operation, the benchmark 10-year Treasury yield extended its rise to 4.95%, marking its highest level since 2023. The 2-year Treasury note yield also climbed to 4.56%, its highest since July 2024, while the 30-year Treasury bond yield reached 5.368%. These movements reflect heightened investor concerns about government debt and market liquidity, despite the buyback program's intention to improve liquidity in longer-dated debt.
The broader market context contributing to the yield surge includes a jump in US oil prices above $100 per barrel, fueling inflation fears and increasing bets on a Federal Reserve interest rate hike as early as next week. While a wholesale inflation report for August showed a 0.4% rise in line with estimates and core prices rising a slightly lower-than-forecasted 0.2%, the oil price surge and the less-than-expected Treasury buyback overshadowed these figures. Investors are now looking ahead to consumer price data and the Federal Reserve's interest rate decision for further market direction.
