U.S. Long-Term Yields Rebound in a Day... "Buyback Is Just a Band-Aid"

Most of Yesterday’s 30-Year Yield Drop Erased
Fiscal Deficit and Inflation Fears Resurface
Renewed Concerns over Iran-Driven Inflation

Although the U.S. Department of the Treasury made a surprise move to significantly expand the scale of its long-term Treasury bond buyback program, long-term Treasury yields rebounded just a day later. In the market, analysts say that while the measure may help improve liquidity in the Treasury market, it falls short of addressing the fundamental factors pushing up long-term yields, such as the massive fiscal deficit, the rising national debt, and concerns over inflation triggered by the Iran war.

Scott Bessent, U.S. Secretary of the Treasury, is arriving at Incheon International Airport on May 13, 2026. Photo by Dongju Yoon

On August 20 local time, the yield on the U.S. 30-year Treasury bond climbed to 5.27% during the session, up 7 basis points (1 basis point = 0.01 percentage point) from the previous day. This erased most of the previous day's approximately 9 basis point drop, which had come right after the Treasury's announcement of an expanded buyback program. The yield later hovered around 5.25%. The 10-year Treasury yield also rose to the 4.7% range during the session.

The U.S. Treasury announced the previous day that it would more than double the scale of its liquidity-supporting buybacks of 10- to 30-year Treasuries, raising the minimum size per operation from USD 200 million to at least USD 400 million. This announcement drew strong buying into the long end, causing yields on the 30-year note to plunge sharply.

However, selling of long-term bonds resumed after just one day. This was because skepticism spread throughout the market that the Treasury's buyback plan is only a short-term fix to improve trading conditions in the long-term Treasury market, and does not address the structural causes of rising long-term yields.

The Financial Times (FT) analyzed that the renewed wave of long-bond selling reflects investors’ concerns over whether the authorities can control inflation triggered by the Iran war, as well as America’s surging public debt.

Eoin Walsh, portfolio manager at TwentyFour Asset Management, said of the measure, "It is unlikely to succeed on its own," adding, "Such intervention is little more than a band-aid."

Long-Term Yields Rise Again amid Serious Fiscal Deficit and War-induced Inflation

One of the biggest factors driving up long-term yields is the United States’ fiscal situation. According to U.S. Treasury data, the U.S. national debt surpassed USD 40 trillion for the first time ever on August 18. Considering the Trump Administration's tax cuts and plans to increase defense spending, most analysts agree that it is unlikely the deficit will shrink significantly in the short term.

Joe Brusuelas, chief economist at RSM US, stated, "Unless there is a tax hike, a slowdown in the pace of increases in government spending, or, as seen in the 1990s, actual fiscal consolidation through cuts in government expenditures, the effect of the buyback will only be temporary."

In particular, there are also voices in the market saying that the size of the current buyback is too small to change the direction of the long-term bond market. Keith Patton, global head of rates and fixed income at Columbia Threadneedle Investments, commented that the Treasury’s buyback plan is "minuscule" compared to the Federal Reserve’s past quantitative easing (QE) programs. He stressed that for such market intervention to be effective, there must be an accompanying shift in core government spending policies.

This measure is also fundamentally different from the Fed’s QE. The Fed’s QE programs exerted downward pressure on long-term yields by directly reducing the supply and duration of long-term bonds held by the private sector through large-scale purchases. In contrast, the Treasury’s buyback program is focused on improving liquidity in the Treasury market.

The FT, citing market experts, pointed out that the scale of this buyback is negligible compared to the Fed’s past QE programs, and that without additional policy changes such as fiscal spending adjustments, its effect may prove only temporary.

Concerns over inflation caused by the Iran war are also fueling selling pressure in the long-term bond market. The FT reported that investors fear that authorities may not be able to control inflation sparked by the Iran war, and that this instability has weighed on long-term bonds over the past several months.

Mitsubishi UFJ Financial Group (MUFG) indicated that the Treasury’s unscheduled buyback expansion could give the impression of a lack of strategic planning. It further warned that if the government tries to control long-term yields through market signals alone without fiscal consolidation, it could actually weaken demand for U.S. assets and the dollar.

This content was produced with the assistance of AI translation services.