Bessent triples debt buyback but market shows disappointment

The US Treasury tripled the initial size of its next buyback of longer-dated government debt, in an announcement that was met with initial disappointment by investors. 

The Treasury Department said it will buy up to $6 billion of outstanding securities set to mature in the 10- to 20-year sector. It's the first such operation under an expanded buybacks program that showcases Secretary Scott Bessent's resolve to stem the recent rise in borrowing costs.

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Treasuries extended an earlier decline after the release, with the yield on 10-year notes up about 6 basis points to 4.85% as of early afternoon in New York. They earlier hit their highest level since 2023.

Dealers had ramped up predictions for Thursday's buyback operation after Bessent publicly touted the potential for purchases of over $4 billion, upsized from the originally scheduled $2 billion cap. The Treasury chief on Tuesday reiterated that while he cannot alter the "equilibrium" price of Treasuries, his objective was to slow moves down and prevent any damaging narrative taking hold in the world's biggest bond market.

"They tripled the amount, but the market is trading it like a disappointment because it's not the shock and awe" investors wanted, said Steven Zeng, a strategist at Deutsche Bank AG. "It's like Treasury created this monster that it now has to keep feeding."

For now, the department offered no further feeding in its guidance for buybacks beyond Thursday. The Treasury said the maximum purchase size for the six other scheduled buybacks of long-dated nominal Treasuries in the current fiscal quarter would be equal to or greater than $4 billion.

That matches the language in the Treasury's original surprise Aug. 19 announcement, when the Treasury said it would "at least double" the size of operations previously penciled in at $2 billion each.

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Yields dropped after the initial announcement of the plan last month, but then retraced the move. Markets in August, when 30-year yields hit their highest since 2007, were driven by concerns "the US is not going to be able to pay its debt. It was absurd, but it just became kind of the dominant narrative," Bessent claimed in a Texas event.

He has separately characterized buybacks as aimed at boosting liquidity. They will enable banks and other institutions to offload harder-to-trade securities so that they can then boost their participation in auctions of new debt, he said last week.

"Scott has absolutely adopted a very activist model as Treasury secretary," Krishna Guha, head of economics at Evercore ISI, said before Wednesday's announcement. "He's tactically very skilled in terms of when and how to surprise and move markets and has had some near-term success."

Guha, who previously worked at the Federal Reserve Bank of New York, said "the challenge is always whether the impact of these kind of interventions can be sustained without bigger changes in fundamentals."

The maximum size of the buyback operation doesn't mean the Treasury will necessarily purchase that amount of securities. However, when it comes to buybacks targeting longer-dated nominal debt, the department does tend to buy the full size, having only twice not done so in the 52 such operations since the program was reintroduced in 2024.

It's also possible for the Treasury to end up buying more, according to Deutsche Bank's Zeng. The Treasury's FAQ page on buybacks notes that a "final buyback announcement" is generally released at 11 a.m. on the day of the operation. This "supersedes the preliminary" one.

Yield Angst

A Trump administration official quoted by Fox Business Wednesday said that the Treasury routinely monitors buyback operations and adjusts them as appropriate to support market functioning and liquidity.

Bessent's expansion of the long-dated buybacks program last month took investors by surprise because it was announced outside the Treasury's quarterly announcement schedule. That's fanned talk of a new, more activist style of US debt management, in contrast to the department's long-held mantra of being "regular and predictable."

Investors and analysts have viewed the amped-up buybacks as a reflection of the Trump administration's unease over the rise in long-term borrowing costs with weeks to go before the November congressional election. The rise in Treasury yields has sent US mortgage rates climbing to the highest level in more than a year.

Bessent has described the effort as a " Treasury twist" — a reference to the Fed's Operation Twists, which were aimed at bringing down longer-term borrowing costs down.

"I am making sure that there is not a bad, big adverse outcome," he said in a Sept. 1 interview with Newsmax.