Washington (TIP): 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 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.
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.
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