US Treasury to double long-dated debt buybacks to battle surging yields

The US Treasury on Wednesday said it would double the size of buybacks for 10- to 30-year government debt securities to at least $4 billion per operation, providing a temporary relief from a weeks-long rise in yields that had unsettled global investors, Reuters reported.

The increase from the previously planned $2 billion buybacks will apply to securities in the 10-year to 20-year and 20-year to 30-year segments. The change will be take effect from September 9 till November 4, the department said.

The announcement followed a sharp bond selloff on Tuesday that pushed the 30-year Treasury yield to its highest level since 2007. Investors were concerned about a possible escalation in the US-Israeli war with Iran and a worsening US fiscal outlook as total public debt approached $40 trillion.


Yields on 20-year U.S. Treasury bonds stayed put following an auction on Wednesday, despite the announcement to ease the pressure on selling.

On Tuesday, the yields had increased despite a scheduled $2 billion Treasury buyback of 20-year and 30-year bonds. The 30-year yield climbed to a 19-year high of 5.34% before retreating. The Treasury’s announcement drove it as low as 5.187%, marking the biggest daily fall in yields since late June.

“This increase in buyback operation sizes reflects Treasury's desire to provide greater liquidity support in longer-dated nominal sectors where there is consistently strong sponsorship from market participants, as evidenced by the significant volume of high-quality offers Treasury routinely receives in longer-dated buyback operations,” the Treasury said in a statement.

Debt-market pressure builds

Market analysts said that the action indicated that the Treasury was sensitive to the risk of debt-market pressures becoming more severe, potentially increasing borrowing costs, keeping mortgage rates high and causing broader financial-market disruption.

“I think they fear the pain of 5% or higher yields on the long end, not only because it raises the interest rate costs for the government but also for the private sector,” Rene Albrecht, senior analyst at DZ Bank in Germany told Reuters. “It's only three months until the midterm elections.”

The benchmark 10-year Treasury yield also declined on Wednesday, falling 6 basis points to 4.65%.

“They have had to grab into the toolkit to get a hand on the recent rise in yields,” Albrecht added.

It marked the second time this month that US Treasury Secretary Scott Bessent had stepped in to counter market moves. On August 1, he joined Japan in a currency-market intervention intended to reverse the yen’s fall to recent 40-year lows against the US dollar.

“Bessent is again showing his tactical skill as an activist Treasury secretary — hitting bond shorts with a surprise announcement of an increased buyback program on an August day with thin liquidity and a lull in prior one-way bets on yields higher,” Evercore ISI analysts said in a note to clients that also questioned whether the operation would have a lasting impact.

“The operation changes almost nothing in terms of the fundamentals, in particular the unchanged need to finance the tidal wave of hyperscaler debt in addition to very large government deficits. The increased size of the operations is modest relative to the flows in the Treasury market,” Evercore ISI said.

The additional $2 billion is small relative to the $32.2 trillion Treasury debt market as of Monday and about $5.5 trillion in outstanding 20-year and 30-year bonds as of July 31.

Unmatured Treasury notes, issued for periods ranging from two to 10 years, totaled $16.2 trillion. Overall public debt, including intergovernmental holdings, stood at $39.99 trillion on Monday and is set to cross the symbolic $40 trillion mark soon.

Treasury revises purchase plans

For the past two years, the Treasury has regularly purchased older securities before their maturity dates to support liquidity in so-called off-the-run bills, notes and bonds.

The next scheduled buyback of 20-year and 30-year bonds is due on September 24, while a repurchase operation for 10-year to 20-year securities is planned for September 10. The Treasury said an updated tentative buyback schedule would be published later.

Tuesday’s buyback of 20-year to 30-year bonds included $1 billion of a bond maturing in 2048 and another $1 billion of two bonds maturing in 2051, Treasury records showed.

Investors offered the Treasury nearly $20 billion of bonds for repurchase during Tuesday’s operation. That was the smallest amount offered this year across 11 operations covering that maturity segment.

In its quarterly refunding announcement earlier this month, the Treasury said it would repurchase up to $69 billion of securities across all maturities between August 6 and November 5.

Three additional buybacks of 20-year to 30-year bonds and four involving 10-year to 20-year securities are planned during that period. They will add at least another $14 billion in liquidity support and raise the maximum amount of repurchases to $83 billion.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)