U.S. Treasury expands long-dated bond buybacks to rein in rising yields

The U.S. Treasury said it will expand its long-term Treasury buyback program, a move closely watched by markets as an effort to ease pressure on long-dated yields and lower government funding costs. According to ME News, the announcement was made on Aug. 20 (UTC+8). The Treasury said that from Sept. 9 to Nov. 4 it will at least double the maximum single-operation size for repurchases of 10- to 30-year Treasuries, raising the cap to $4 billion from $2 billion. Long-term yields fell quickly after the release. The 30-year yield dropped by nearly 10 basis points at one point, while U.S. equities moved higher. Market participants said the buybacks are officially framed as a technical step to improve market liquidity, but the main aim is to check the persistent climb in long-term yields. BNP Paribas estimates that at the current pace the Treasury could repurchase roughly $128 billion a year in 10- to 30-year maturities, about 30% of issuance for that segment but only 2.4% of total Treasuries outstanding. Jim Bianco, founder of Bianco Research, said a new market refrain may be taking hold: "When Bentsen panics, bond traders can stop panicking." The policy shift comes as the 30-year Treasury yield recently broke above 5.3%, hitting a 20-year high, and average mortgage rates have again approached 7%. Total U.S. federal debt has topped $40 trillion, and the fiscal deficit remains around 6% of GDP, keeping investor focus on debt sustainability. Treasury Secretary Bentsen, a former hedge fund manager, has leaned on less conventional tools since taking office, including changes to issuance strategy, efforts to advance regulatory reforms, and foreign-exchange market interventions. Some investors describe his approach as reflecting a "hedge fund-style" macro trading mindset. Still, analysts cautioned that buybacks cannot solve the underlying problem of long-term deficits and rising debt. Robin Brooks of the Brookings Institution said the step looks more like "yield-curve manipulation" than a fix for the root causes. Markets are now assessing whether the Treasury's intervention can keep yields lower on a sustained basis or merely offer a short-lived reprieve. Analysts said that without changes to fiscal spending and debt growth, repurchases alone are unlikely to shift the long-term trajectory of the Treasury market. (Source: BlockBeats)