The US Treasury Department said on Wednesday that it will more than double the size of its government debt buybacks. The move comes as the bond market is facing heavy pressure and Treasury yields have climbed to levels not seen in nearly 20 years.
Treasury Secretary Scott Bessent is leading the department as it increases its role as a buyer in the government bond market, CNBC reported. The main aim is to support liquidity in the longer-term part of the Treasury market, where trading conditions have become difficult.
Buybacks will target longer-term Treasury debt
Under the new plan, Treasury will focus on government debt with maturities of 10 to 20 years and 20 to 30 years. These longer-term bonds have faced a buyers' strike since late June, meaning investors have been less willing to buy them.
The Treasury currently allows a maximum of $2 billion in each buyback operation. That amount will now be increased to at least $4 billion, meaning the size of the operations will at least double, according to the Treasury Department. The new plan will begin on September 9 and remain in place through November 4.
Bond yields dropped after the announcement
Treasury's announcement immediately pushed bond yields sharply lower, while US stock market futures moved higher. The benchmark 10-year Treasury yield fell 6 basis points to 4.647%. The 30-year Treasury yield dropped 9 basis points to 5.196%. One basis point is equal to 0.01 percentage point. Treasury bond prices and yields move in opposite directions, so falling yields mean bond prices are rising.
{{/usCountry}}Treasury's announcement immediately pushed bond yields sharply lower, while US stock market futures moved higher. The benchmark 10-year Treasury yield fell 6 basis points to 4.647%. The 30-year Treasury yield dropped 9 basis points to 5.196%. One basis point is equal to 0.01 percentage point. Treasury bond prices and yields move in opposite directions, so falling yields mean bond prices are rising.
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Why is the Treasury doing this?
Treasury said the larger buyback operations are meant to provide more liquidity in longer-dated parts of the government bond market. The department said there is still strong interest from market participants in these longer-term bonds. Treasury also pointed to the large number of high-quality offers it regularly receives during longer-term buyback operations.
The move could attract investors back
Krishna Guha, head of global policy and central bank strategy at Evercore ISI, said the bigger buybacks could encourage investors who were staying away because yields had risen sharply to return to the market, according to CNBC. He said the move could also force some investors who had bet on falling bond prices to quickly close those positions. However, he said the buyback does not change the bigger financial problems facing the market.
Economists warn about inflation
Some economists are worried that Treasury's attempt to keep longer-term yields under control could make the Federal Reserve's fight against inflation harder. Joe Brusuelas, chief economist at RSM, said keeping yields artificially low could create problems for the Fed as it tries to bring inflation back to its 2% target, according to CNBC.
The concern is that if government action pushes borrowing costs lower, financial conditions could become easier than they otherwise would be. That could make it harder for the Fed to slow demand and bring inflation down. Brusuelas argued that Treasury's increased buying could interfere with that process by helping suppress market-driven yields.
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Why have Treasury yields risen so much?
Market experts have pointed to several reasons behind the recent rise in Treasury yields. One factor is the term premium — the extra return investors demand for holding government bonds for a longer period. Investors may demand a higher premium when they are worried about inflation, government borrowing or other risks over many years.
Another factor is the changing group of investors buying US government debt. The market has also been dealing with a rise in corporate bond issuance, especially as major technology companies raise money for their huge AI investments.
AI spending is adding pressure to the bond market
The growing AI boom has created another source of borrowing in financial markets. Large technology companies and hyperscalers are spending huge amounts on data centers, chips and other AI infrastructure. Some of this spending is being financed through corporate debt. That means investors have more corporate bonds to consider alongside US government bonds. This changing supply and demand picture has added pressure to parts of the fixed-income market.
Peter Boockvar, chief investment officer at One Point BFG Wealth Partners, stressed that the Treasury's move does not reduce the government's overall debt. “This is NOT a debt paydown,” Boockvar wrote. Instead, the operation mainly changes the maturity mix of Treasury debt. So, the plan may help the bond market's liquidity, but it does not solve the US government's huge borrowing and deficit problem.