Bessent boosts debt buybacks after climb in Treasury yields

Scott Bessent invoked the buyback program last year as part of the department’s “big toolkit we can roll out” if needed to address dislocation in the Treasuries market. Photo by Aaron Schwartz/AFP via Getty Images

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Just two weeks after releasing its planned schedule for buybacks this quarter, the Treasury Department on Wednesday said it’s “increasing, by at least double, the size of liquidity support buyback operations” for securities dated from the 10-year to the 30-year sector. Yields on the longest bond dropped nearly 10 basis points to 5.185 per cent, pulling back from their highest level since 2007.

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Treasury Secretary Scott Bessent invoked the buyback program last year as part of the department’s “big toolkit we can roll out” if needed to address dislocation in the Treasuries market. He’s also repeatedly said, since taking office, that his key financial-market benchmark is 10-year yields. Last November, he said, “my job is to be the nation’s top bond salesman. And Treasury yields are a strong barometer for measuring success in this endeavour.”

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“This administration needs a win and maybe that comes in the form of artificially trying to keep long Treasury rates contained,” said Jack McIntyre, a portfolio manager at Brandywine Global Investment Management. “They have to try something. Sentiment around the long-end globally is about as bearish as I have seen in a very long time.”

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Officials made the announcement as long-dated government bond yields around the globe rose to significant levels this week — with the U.S. 30-year trading at its highest since 2007. Traders are also preparing for a US$16 billion auction of new 20-year bonds. A 10-year auction last week drew the highest financing cost at that tenor since 2007, while a 30-year sale a day later was at the greatest yield since 2001.

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“If yields go to far, Treasury will try and fight it — and now we know where some pain points are,” said John Briggs, head of U.S. rates strategy at Natixis North America.

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“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 its statement.

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—With assistance from Edward Bolingbroke.

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