US treasury doubles bond buybacks as yields come under pressure

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By David LawderWashington — The US treasury on Wednesday announced a doubling of buyback sizes for 10- to 30-year treasury debt securities to at least $4bn per operation, staunching, at least temporarily, a weeks-long upward march in yields that had unnerved global investors.The increase from previously planned $2bn buybacks will apply to the 10-year to 20-year sector and the 20-year to 30-year sector and will be effective September 9 through November 4, the department said in a statement.The move was announced a day after a major bond selloff pushed the 30-year treasury yield to its highest level since 2007 amid worries of an imminent escalation in the US-Israeli war with Iran and rising concerns over a deteriorating US fiscal picture as total public debt outstanding nears the $40-trillion mark.Yields had risen on Tuesday despite a previously scheduled $2bn buyback operation of 20-year and 30-year bonds that day.The 30-year yields had hit a 19-year high of 5.34% on Tuesday but later subsided, and the treasury’s announcement drove them down further, to as low as 5.187%, marking the largest daily drop in yields since late June.“This increase in buyback operation sizes reflects treasury’s desire to provide greater liquidity support in longer-dated nominal sectors where there is consistent strong sponsorship from market participants, as evidenced by the significant volume of high-quality offers treasury routinely receives in longer-dated buyback operations,” the treasury said in a statement.Market analysts said the treasury’s action reflects sensitivity to debt market pressures potentially becoming more problematic, adding to borrowing costs, keeping mortgage rates high and risking broader financial market dislocations.“I think they fear the pain of 5% or higher yields on the long end, not only because it raises the interest rate costs for the government but also for the private sector,” said Rene Albrecht, senior analyst at DZ Bank in Germany. “It’s only three months until the midterm elections.”The yield on the benchmark 10-year treasury note was also lower on Wednesday, down six basis points to 4.65%.“They have had to grab into the toolkit to get a hand on the recent rise in yields,” Albrecht added.The increase was the second time this month that US treasury secretary Scott Bessent has stepped in to try to counteract market moves, having joined Japan in an August 1 currency market intervention aimed at reversing the yen’s slide to recent 40-year lows against the US dollar.“Bessent is again showing his tactical skill as an activist treasury secretary — hitting bond shorts with a surprise announcement of an increased buyback programme on an August day with thin liquidity and a lull in prior one-way bets on yields higher,” Evercore ISI analysts said in a note to clients that also questioned whether the operation would have a lasting impact.“The operation changes almost nothing in terms of the fundamentals, in particular the unchanged need to finance the tidal wave of hyperscaler debt in addition to very large government deficits. The increased size of the operations is modest relative to the flows in the treasury market,” Evercore ISI said.The $2bn increase is a pittance compared to the $32.2-trillion treasury debt market as of Monday and about $5.5-trillion in outstanding 20-year and 30-year bonds as of July 31. There were $16.2-trillion of unmatured treasury notes, which are issued at terms ranging from two to 10 years.The operation changes almost nothing in terms of the fundamentals, in particular the unchanged need to finance the tidal wave of hyperscaler debt in addition to very large government deficits.— Evercore ISI analystsOverall public debt, including intergovernmental holdings, stood at $39.99-trillion on Monday and is set to imminently breach the symbolic $40-trillion mark.The treasury has for the past two years engaged in scheduled purchases of older-vintage securities prior to their maturity dates to provide liquidity support for those so-called off-the-run bills, notes and bonds.The next currently scheduled buyback operation for 20- and 30-year bonds is set for September 24, with a 10- to 20-year buyback scheduled on September 10. The treasury said it would publish an updated tentative buyback schedule at a later date.Tuesday’s buyback of 20- to 30-year bonds included purchases of $1bn of a bond maturing in 2048 and another $1bn of two bonds maturing in 2051, treasury records show.Investors had offered nearly $20bn of bonds to the treasury to repurchase in the Tuesday operation, which was the smallest amount investors have sought to sell back so far this year across 11 operations covering that maturity sector.In its quarterly refunding announcement earlier this month, treasury said it would repurchase up to $69bn of treasuries across all maturities between August 6 and November 5. Three more buybacks of 20- to 30-year bonds and four of 10- to 20-year securities are scheduled in that window, adding at least an additional $14bn of liquidity support and bringing the maximum repurchases to $83bn.