The U.S. Treasury announced that it will buy back up to $6 billion in longer-term government bonds on Thursday, three times the usual single operation size of about $2 billion, targeting bonds issued with maturities of 10 to 20 years, aimed at supporting liquidity at the long end.

Treasury Secretary Scott Bessent stated on August 19 that such operations should at least be doubled to $4 billion, citing that liquidity at the long end is "very poor." The $6 billion is above the "at least $4 billion" lower limit but below some Wall Street expectations of $7 billion to $10 billion. The operation window is from 1:40 PM to 2:00 PM ET, with the targeted maturity dates ranging from February 2037 to August 2046, purchasing older off-the-run bonds rather than newly issued benchmark bonds.

After the announcement, the 10-year yield rose to about 4.85%, the highest since October 2023; the 20-year yield briefly exceeded 5.3%; and the 30-year yield stood at about 5.31%. On the same day, the Treasury also auctioned $39 billion in new 10-year bonds, with a winning yield of about 4.834%, one of the highest levels for newly issued bonds of that maturity in about 20 years. The total outstanding government debt is approximately $30 trillion to $32 trillion, with daily transactions exceeding $1 trillion. In August, the 30-year yield had risen to its highest level since 2007.

The buyback plan will extend until November 4, with the lower limit for remaining long-end operations still set at "not less than $4 billion." The Treasury's stance is to enhance long-end liquidity, allowing banks to offload hard-to-sell old bonds before participating in new bond auctions, rather than a Federal Reserve-style quantitative easing. Strategists from Wells Fargo and BNP noted that the market initially expected a larger single operation size. National debt exceeded $40 trillion in August.

Bessent attributed part of the long-end sell-off to the narrative that "the U.S. cannot pay its debts," stating it is detached from fundamentals. Buying back old bonds while continuing to issue new bonds means net supply has not disappeared. Rising oil prices and inflation expectations are simultaneously pressuring bonds.

In market mechanics, the sellers are primary dealers and banks looking to clear off-the-run inventories, while the buyers are the Treasury's cash account. The event-driven aspect comes from the buyback size being lower than expected, with funds continuing to demand a term premium at the long end. Beneficiaries are traders who can exchange old bonds for cash to bid on new bonds; those under pressure are funds leveraged long on government bonds, mortgage pricing, and corporate debt pricing. The $6 billion in a market with daily transactions of over $1 trillion is a liquidity adjustment, not a rewrite of the deficit path.

The yields on 10-year, 20-year, and 30-year U.S. Treasuries rose after the announcement; the subscription situation for the new 10-year auction will determine whether the short-term decline stops.

Source: Public Information