Buyback tripled from previous round but falls short of market expectations; 10-year yield hits highest level since November 2023

Deutsche Bank strategist: Treasury 'seems to have created a monster it must keep feeding'

US Treasury Secretary Scott Bessent [AFP]
US Treasury Secretary Scott Bessent [AFP]

The US Treasury Department is expanding its long-term Treasury bond buyback program to as much as $6 billion. The move follows through on a pledge by Treasury Secretary Scott Bessent to stabilize the bond market. But US Treasury yields rose instead, as market participants judged the size of the buyback fell short of expectations.

The Treasury announced Wednesday (local time) that it would conduct a buyback of up to $6 billion in bonds maturing in 10 to 20 years on Thursday. The amount is triple the size of the previous long-term Treasury buyback.

Bessent had signaled he would expand the buyback program to support market liquidity and cool the recent rise in yields. His comments came after the 30-year Treasury yield surged to its highest level since 2007. The Treasury's direct purchase of long-term bonds signaled an effort to ease the supply-demand pressure driving the sharp rise in long-term rates.

On Aug. 21, Bessent said the Treasury had "many policy tools" at its disposal and suggested the buyback could exceed $4 billion per round. That comment quickly fueled expectations in the market that the Treasury might pursue a more aggressive buying spree than previously anticipated.

When the Treasury unveiled the actual buyback size, however, the financial market's reaction leaned toward disappointment. Even though the buyback amount rose sharply from previous levels, it fell short of what the market had anticipated, sending US Treasury yields higher across the board.

The 10-year Treasury yield stood at 4.843 percent as of 12:13 p.m. US Eastern time, up 3.9 basis points (1 basis point equals 0.01 percentage point) from the previous session. That marks the highest level since Nov. 1, 2023.

The 30-year Treasury yield rose 3.6 basis points to 5.295 percent, while the two-year Treasury yield climbed 2.9 basis points to 4.425 percent.

Bond yields and bond prices move inversely, so rising yields indicate falling bond prices.

Some on Wall Street had speculated that the Treasury might pursue a bolder buyback in the range of $7 billion to $8 billion, but the result fell short of those expectations.

"The Treasury tripled the amount, but it fell short of the 'shock' investors had expected, leaving the market disappointed," said Steven Zeng, a strategist at Deutsche Bank.

"It seems the Treasury has created a monster that it now has to keep feeding," he added.


mokiya@heraldcorp.com