U.S. Treasury Expands Buyback Program to $6 Billion... 10-Year Yield Rises Instead

Expanded to Three Times the Previous Level, but Fails to Meet Market Expectations

10-Year Treasury Yield Rises to 4.85% During Session

10-Year Treasury Auction Scheduled for 1 p.m.

The U.S. Department of the Treasury has expanded the size of its long-term Treasury bond buyback (early redemption) program to a maximum of $6 billion, three times the previously planned amount, in an effort to calm the rise in long-term government bond yields. However, the market was disappointed by what was viewed as an underwhelming increase, resulting in the yield on the 10-year U.S. Treasury bond rising instead.

10-Year U.S. Treasury Yield. Investing.com

According to Bloomberg and other sources on September 9 (local time), the U.S. Treasury announced that the maximum purchase amount for the long-term Treasury buyback to be carried out on September 10 has been set at $6 billion. This is three times higher than the $2 billion previously presented to investors.

On August 19, the Treasury had stated it would at least double the scale of buybacks for 10–20-year and 20–30-year Treasuries compared to previous levels, in an attempt to stabilize the long-term bond market. The maximum purchase amount for previous long-term liquidity-supporting buybacks was $2 billion.

After Treasury yields rebounded within a day, U.S. Treasury Secretary Scott Bessent heightened market expectations by suggesting that future purchase amounts could exceed $4 billion. Secretary Bessent explained that the goal was to prevent a sharp increase in market volatility, stating that the buybacks would boost liquidity for less-traded existing Treasuries and enhance the capacity of financial institutions to participate in new bond auctions.

Nevertheless, despite the Treasury’s announcement of the $6 billion scale, the market reaction was cool. According to Bloomberg, U.S. Treasury prices declined further immediately after the announcement, and the benchmark 10-year Treasury yield rose about 6 basis points (1bp = 0.01 percentage point) from the previous session, reaching 4.85% at 11:16 a.m. New York time.

Bloomberg reported that some investors were disappointed, having expected a larger buyback. Guneet Dhingra, Head of U.S. Rate Strategy at BNP Paribas, said before the announcement that a maximum purchase of $7 billion would be needed to deliver a positive surprise to the market, and warned that if the amount was smaller, selling pressure on Treasuries could ensue.

U.S. Department of the Treasury website

This expansion of the buyback comes amid a rapid climb in U.S. long-term Treasury yields. Last week, the yield on the 10-year Treasury reached its highest level since 2023, while the yield on the 30-year Treasury in August rose to its highest since 2007. The increase in long-term Treasury yields is pushing up borrowing costs for consumers, including mortgage rates, acting as a headwind for the U.S. economy.

Secretary Bessent has noted that during this recent surge in long-term yields, concerns about the sustainability of U.S. fiscal policy have been overstated and has called for measures to ease the market’s sharp moves. He has even likened the expansion of the Treasury buyback to the Federal Reserve’s past “Operation Twist,” dubbing it the “Treasury twist.”

However, the Treasury’s official rationale for the buyback is not the artificial suppression of long-term rates, but rather the improvement of liquidity in the Treasury market. The existing Treasury buyback program has also been operated for “liquidity support” in the bond market.

The $6 billion figure announced is the maximum purchase cap, not the actual purchase amount. However, Bloomberg noted that since the Treasury reintroduced the buyback program in 2024, it has purchased up to the maximum limit in most of the 52 buyback operations targeting long-term nominal Treasuries, with only two exceptions.

Meanwhile, the scheduled 10-year Treasury auction later in the day and the 30-year auction on September 10 will be the first test of the effectiveness of the expanded buyback. If there is weak demand for long-term Treasuries, upward pressure on yields may persist despite the increase in buyback size.

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