'US Treasury Unable to Curb Climb in Long-Term Yields' [Weekend Money]

Emergency Move as 10-Year Yields Surge to 4.75%
US Treasury Doubles Buyback Program
Vicious Cycle of Rising Government Interest Costs

The US Department of the Treasury has more than doubled the size of its Treasury buyback (repurchase) program in an effort to stabilize long-term interest rates. However, analysts have pointed out that it will be difficult to fundamentally curb upward pressure on long-term yields.

An employee is organizing US dollars at the Counterfeit Response Center of Hana Bank in Jung-gu, Seoul. Photo by Yonhap News Agency

According to KB Securities, the US Treasury announced that from September 9 to November 4, it would increase the buyback amount for long-term Treasury bonds with 10 to 30 years remaining to maturity to at least twice the previous maximum of $2 billion per round.

This measure was taken to ease mounting anxiety in the long-term bond market, as the yield on 10-year notes has soared sharply to 4.75%. The Treasury aims to stabilize long-term rates by using funds raised from increased short-term bond issuance to purchase less liquid long-term bonds and thereby alter the maturity structure.

In particular, the Treasury is expected to focus on purchasing "off-the-run" bonds—those that are less frequently traded and thus experience steeper price declines when rates rise—in order to inject liquidity and reduce the portion of such bonds in the market.

KB Securities has pointed out that the expansion of Treasury buybacks is merely a "stopgap measure" rather than a structural solution. Currently, the proportion of short-term Treasuries in total outstanding US government bonds already exceeds the recommended range (at 22.1%, above the suggested 15–20%), which is causing concern even within the Treasury. In addition, both public and private sector debt creation has led to a sharp increase in demand for capital, while liquidity supply has failed to keep up.

Heejin Kwon, a researcher at KB Securities, commented, "For yields to stabilize, either a reduction in capital demand or an increase in supply is ultimately required, but the likelihood is low." She further noted, "The government's rising interest costs raise the prospect of yet another increase in Treasury issuance, fueling a vicious cycle and making it even harder for upward pressure on interest rates to dissipate."

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