The US Treasury plans to buy back as much as $6 billion of government debt in its next operation. The bonds will have maturities of 10 to 20 years. This is three times larger than the previous maximum of $2 billion. Treasury Secretary Scott Bessent had earlier indicated a $4 billion minimum for the expanded buyback plan. The move is aimed at improving trading and liquidity in longer-term US government bonds.
The bigger buyback did not calm investors. The benchmark 10-year US Treasury yield rose to its highest level since November 2023 after the announcement. The 20-year yield also climbed to a three-week high. The 30-year yield also reached a three-week high. Bond yields move in the opposite direction to bond prices, meaning yields rise when bond prices fall, according to Reuters.
US Treasury bond buyback
Some investors had expected the Treasury to announce a much larger operation. There were expectations in the market that the buyback could be as large as $10 billion. Padhraic Garvey, head of global rates and debt strategy at ING in New York, said the market felt the Treasury could have made a stronger statement, according to Reuters. Garvey suggested that the $6 billion move could be only the first step and said, “I suspect this is just the opening gambit.”
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US bond yields rise
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US bond yields rise
{{/usCountry}}Analysts said the buyback may have only a limited effect on borrowing costs. Treasury buybacks can help improve liquidity in older government bonds and may support prices of longer-term bonds. But the planned $6 billion purchase is tiny compared with the roughly $32 trillion US Treasury market. Because of its small size, the operation does not change the bigger supply-and-demand forces that have pushed long-term yields higher over the past three months.
Long-term Treasury bonds
Some investors may have wanted the Treasury to make clear that $6 billion is a minimum, rather than the maximum amount it plans to buy in the future. The market is now watching whether the Treasury will increase its purchases if long-term yields continue to rise. The larger buyback announcement failed to convince many investors that the Treasury could quickly fix the pressure in the long-term bond market, according to Reuters.
US government debt
The concern comes as the US government continues to carry a huge debt burden. US government debt recently crossed $40 trillion, while monthly budget deficits have recently been much larger than federal revenue. This has increased worries about how much government debt the market can absorb, especially at longer maturities.
Jim Barnes, director of fixed income at Bryn Mawr Trust, said investors may have been unsettled by Treasury's decision to actively try to control pressure on long-term bond yields. He said the move could make investors think the problems caused by large deficits and high government debt are more serious than previously believed. Barnes said the size of the buyback was not the main issue. The bigger point was that the Treasury was actively stepping in to support the market.
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Treasury buyback plan
Treasury buybacks were initially seen mainly as a way to improve liquidity in older or less-traded government bonds. Investors are now also looking at them as a possible way to reduce supply pressure on longer-term bonds. This change in expectations has raised the pressure on Treasury to make its buyback program bigger and more effective, according to Reuters.
Even though the new operation is three times larger than the previous $2 billion maximum, it was not enough to reverse the recent fall in bond prices. As a result, long-term Treasury yields continued to rise. Investors are now watching whether the Treasury will increase buybacks further or take other steps to support the bond market.
US deficit and inflation
Analysts say Treasury buybacks cannot solve the main reasons behind rising long-term yields. Tony Miano, investment strategy analyst at Wells Fargo Investment Institute, said several forces are pushing yields higher. These include widening US federal deficits, persistent inflation and higher bond issuance around the world. This means the $6 billion buyback is more of a temporary measure, while the bigger debt and borrowing problems remain, according to Reuters.