The US Treasury announced it would buy back up to $6 billion in longer-dated government debt on Thursday, September 10, significantly increasing its initial target to stem rising borrowing costs. This amount is triple the $2 billion initially communicated to investors, following an August 19 announcement by Treasury Secretary Scott Bessent that the department would "at least double" the size of such operations. Future operations are expected to be at least $4 billion.
This move specifically targets 10- and 20-year Treasury notes, which are considered a less liquid part of the market and have seen yields reach multi-year highs. The extraordinary measure is aimed at maintaining market liquidity and is also perceived as an attempt to cap Treasury yields, which had reached levels not seen since before the 2008 financial crisis. Despite the Treasury's efforts, market reaction was largely negative, with long-dated yields rising further. The benchmark 10-year issue hit 4.841%, the 20-year climbed to 5.314%, and the 30-year bond rose 5 basis points to 5.307%.
Analysts expressed mixed reactions to the buyback's scale. Mark Spindel of Potomac River Capital noted, "Hank Paulson's bazooka this is not," suggesting the current measure is less impactful than previous crisis interventions. Robert Tipp of PGIM Credit highlighted that the $6 billion amount, while substantial, is still at the lower end of market expectations, which anticipated between $6 billion and $10 billion. This led to a negative market reaction and a sell-off in the long end of the curve. Alex Pelle, an economist at Mizuho, suggested that the Treasury might further increase the buybacks, but anticipated pressure to deviate from standard operating procedures might lessen after the midterms.
The increased Treasury yields are attributed to several factors, including the surging government debt, which recently exceeded $40 trillion, heightened inflation concerns due to tariffs and the Iran war, and a corresponding increase in energy prices, with crude oil surpassing $100 a barrel. Critics, including Stanley Druckenmiller, head of Duquesne Family Office and a former mentor to Secretary Bessent, have questioned the effectiveness of such buybacks on a massive market and expressed concern about the Treasury departing from predictable market operations. Druckenmiller argued that governments defending prices against fundamentals invariably lose, and that such operations would continually need to grow to survive market tests.
