US doubles long-bond buybacks amid surging yields

The US Treasury announced on Wednesday support measures for long-duration bonds, stepping in to staunch, at least temporarily, an upward march in yields that had unnerved global investors.

The move to double buyback sizes for long-duration debt came after a major bond selloff pushed the 30-year Treasury yield to its highest level since 2007 amid worries of an imminent escalation in the US-Israeli war with Iran and rising concerns over a deteriorating US fiscal picture.

Higher bond yields push up borrowing costs, squeezing households, companies, financial markets and the federal budget alike. Total public debt outstanding topped the US$40 trillion markon Wednesday.

“I think that this will have a huge impact on the long end,” said Dan Gottlander, global head of USD and CAD swaps trading at Citi, although he added that the move might prompt the US Treasury to issue more short-term debt instead.

“It does not change deficits, obviously, and if you are going to buy back the long end, you still will need to issue,” said Gottlander. “They may issue more bills, or also in the five-year to 10-year sector.”

The Treasury will double buyback sizes for 10- to 30-year Treasury debt securities to at least US$4 billion per operation. The increase from the previously planned US$2 billion buybacks will apply to the 10-year to 20-year sector and the 20-year to 30-year sector and will be effective Sept 9 through Nov 4, the department said in a statement.

Yields had risen on Tuesday despite a previously scheduled US$2 billion buyback operation of 20-year and 30-year bonds that day.

The 30-year yield had hit a 19-year high of 5.34% on Tuesday but later subsided. The Treasury’s announcement drove it down, last trading at 5.184%.

“This increase in buyback operation sizes reflects Treasury’s desire to provide greater liquidity support in longer-dated nominal sectors where there is consistent 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.

President Donald Trump said Americans should not worry about volatility in the bond market.

Asked by reporters if Americans should be concerned, Trump said: “No, I don’t think so.”

Higher yields, higher costs

Market analysts said the Treasury’s action reflects sensitivity to debt market pressures potentially becoming more problematic, adding to borrowing costs, keeping mortgage rates high and risking broader financial market dislocations.

“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,” said Rene Albrecht, senior analyst at DZ Bank in Germany. “It’s only three months until the midterm elections.”

The yield on the benchmark 10-year Treasury note also was lower on Wednesday, down about 6 basis points to 4.66%.

It was the second time this month that US Treasury Secretary Scott Bessent has stepped in to try to counteract market moves, having joined Japan in an August 1 currency market intervention aimed at reversing the yen’s slide 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.

But they also questioned whether the move would have a lasting impact given that the Treasury still needs to finance a “tidal wave” of maturing debt and deficits.

Thomas Simons, chief US economist at Jefferies in New York, said the surprise buyback announcement upends the Treasury’s tradition of consistent communications about “regular and predictable” debt issuance, adding that the move feels “shot from the hip.”

Small share of huge debt pool

The US$2 billion increase is a pittance compared to the US$32.2 trillion Treasury debt market as of Monday and about US$5.5 trillion in outstanding 20-year and 30-year bonds as of July 31. There was US$16.2 trillion of unmatured Treasury notes, which are issued at terms ranging from two to 10 years.

The Treasury has for the last two years engaged in scheduled purchases of older-vintage securities prior to their maturity dates to provide liquidity support for those so-called off-the-run bills, notes and bonds.

The next currently scheduled buyback operation for 20- and 30-year bonds is set for Sept 24, with a 10- to 20-year buyback scheduled on Sept 10. In its quarterly refunding announcement earlier this month, Treasury said it would repurchase up to US$69 billion of Treasuries across all maturities between Aug 6 and Nov 5. Three more buybacks of 20- to 30-year bonds and four of 10- to 20-year securities are scheduled in that window, adding at least an additional US$14 billion of liquidity support and bringing the maximum repurchases to US$83 billion.

Investors were reassured that the Treasury was ready to act.

“This doesn’t solve the underlying issues around deficits, inflation, or Treasury supply,” said Anshul Sharma, chief investment officer, Savvy Wealth, New York. “But it buys some time and, perhaps more importantly, signals that Treasury has tools available and is willing to use them when market conditions warrant.”

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