The US Treasury announced it would buy back up to $6 billion in longer-dated government debt in its initial operation under an expanded buyback program. This amount is triple the $2 billion initially communicated to investors and follows an August 19 announcement by Treasury Secretary Scott Bessent that the size of such operations would "at least double." The move is intended to address the recent increase in borrowing costs.
This buyback operation, scheduled for Thursday, September 10, will target 10- and 20-year Treasury notes. Future operations are planned to be at least $4 billion. Despite the Treasury's efforts, bond yields for long-dated securities rose, with the benchmark 10-year issue hitting 4.841% and the 20-year climbing to 5.314%.
Analysts have expressed mixed reactions. Mark Spindel of Potomac River Capital noted the limited impact compared to past financial crises, while Robert Tipp of PGIM Credit suggested that the $6 billion figure, although triple the previous amount, was at the lower end of market expectations, leading to a negative market reaction. Critics like Stanley Druckenmiller warned that defending a price level risks escalating intervention.
The increase in buybacks is occurring amidst a surge in government debt, which recently exceeded $40 trillion, alongside elevated inflation concerns due to tariffs and the Iran war, and rising energy prices. These factors have contributed to higher Treasury yields. The Treasury's actions also come as Federal Reserve Chairman Kevin Warsh has advocated for less involvement in financial markets.
Treasury Secretary Scott Bessent stated that he does not believe current Treasury yields reflect underlying fundamentals, but he also acknowledged that he cannot change the equilibrium price of Treasurys. Instead, his aim is to "speed things down" and ensure market participants understand that the market is not on a "one-way trip."
