NEW YORK, Sept 10 — Investors showed little enthusiasm after the U.S. Treasury announced a threefold increase in the size of its planned repurchase of long-dated government bonds, with market yields continuing to climb amid concerns over rising federal debt and deficits.
The Treasury said it would purchase up to $6 billion of securities maturing between 10 and 20 years in its next buyback operation, compared with the previous $2 billion maximum. The move exceeded the $4 billion minimum Treasury Secretary Scott Bessent had indicated last month as officials sought to strengthen liquidity in longer-maturity government debt.
The larger operation, however, failed to reassure investors who have become increasingly uneasy about the outlook for longer-dated Treasuries. A relatively resilient economy combined with widening fiscal deficits has contributed to higher borrowing costs, putting further pressure on long-term government bonds.
The benchmark 10-year Treasury yield climbed to its highest level since November 2023 following the announcement on Wednesday morning. Yields on 20-year and 30-year Treasury bonds also reached multi-week highs. Bond yields and prices move in opposite directions, meaning the rise in yields reflected further declines in bond prices.
“There was the feeling in the marketplace that the Treasury could have made a statement,” said Padhraic Garvey, head of global rates and debt strategy at ING in New York. Some investors had expected the operation to be as large as $10 billion.
“I suspect this is just the opening gambit,” Garvey said.
BOND YIELDS SURGE
The market reaction highlighted the limited ability of Treasury buybacks to directly influence borrowing costs, analysts said. By purchasing older government securities, the Treasury can improve liquidity in less-traded bonds and provide some support to prices at the longer end of the yield curve.
Yet the $6 billion operation remains small compared with the roughly $32 trillion Treasury market. Analysts said the purchase is unlikely to significantly change the wider supply-and-demand forces that have pushed long-term yields sharply higher over the past three months.
Investors may also have been looking for stronger indications that $6 billion represents a minimum level for future operations rather than a maximum.
Jim Barnes, director of fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania, said the Treasury’s willingness to intervene more actively may itself have unsettled some investors.
The United States has recently seen its outstanding government debt surpass $40 trillion, while monthly fiscal deficits have at times greatly exceeded federal revenue.
“The market is probably thinking that with the Treasury looking at this and trying to keep a ceiling on yields, that it’s a bigger problem than what we think it is in terms of the deficits and outstanding debt,” Barnes said.
“The $6 billion is not a big amount — it’s more the fact they’re actively doing it.”
Investor expectations for Treasury buybacks have also evolved. The program was initially regarded primarily as a way to improve liquidity and the functioning of the government bond market. Increasingly, however, investors have viewed larger purchases as a possible means of reducing supply pressures in longer-term maturities.
The latest announcement did little to persuade the market that the expanded operation would substantially improve that balance.
The response leaves Treasury facing a difficult task as it seeks to contain the rise in long-term yields. Even a buyback three times larger than the previous maximum was insufficient to halt the recent bond selloff, leaving investors focused on whether officials will expand purchases further or introduce additional measures to support the market.
For now, market participants largely regard buybacks as a short-term tool rather than a solution to the structural forces weighing on government bonds.
“Treasury buybacks are unlikely to materially alter the diverse forces raising yields, including widening federal deficits, sticky inflation and increased global bond issuance,” said Tony Miano, investment strategy analyst at Wells Fargo Investment Institute.
