The U.S. Treasury executed a buyback operation of $2.385 billion in government bonds on the same day, which involves the government proactively repurchasing its previously issued outstanding bonds from the market before they mature.

This buyback plan is authorized under Title 31, Section 3111 of the U.S. Code, with the Treasury using general fund resources to repurchase outstanding government bonds and Treasury Inflation-Protected Securities (TIPS), primarily targeting "off-the-run" securities, while short-term Treasury bills, floating rate notes, and Separate Trading of Registered Interest and Principal Securities (STRIPS) are excluded from the buyback.

Since September 9, the Treasury has increased the single operation scale limit for long-term liquidity support buyback operations from the previous $2 billion to $4 billion, covering nominal coupon bonds with maturities ranging from 10 to 20 years and from 20 to 30 years. This increased scale will continue until November 4, when the Treasury will announce the next phase of operational scale arrangements at the quarterly refinancing meeting.

The Treasury explained that this move "reflects the Treasury's desire to provide greater liquidity support in the long-term bond sector, as this sector continues to receive strong subscription interest from market participants," and mentioned that the Treasury routinely receives a large number of high-quality bids in long-term buyback operations.

The background for this expanded buyback scale is the sustained pressure on long-term U.S. Treasury yields: during the week of August 19, the 30-year Treasury yield briefly reached 5.323%, a 19-year high, while the 10-year yield exceeded 4.7% during the same period; after the Treasury announced the expanded buyback scale, the 10-year Treasury yield immediately fell by 6 basis points to 4.647%, and the 30-year Treasury yield fell by 9 basis points to 5.196%.

John Briggs, an analyst at Natixis for North America, commented that the Treasury's decision to act at this time signals that "the Treasury is willing to intervene when yields rise too quickly," which also reveals "which segments of the current market are under significant pressure."

From a market mechanism perspective, the Treasury, as a buyer, directly absorbs the supply of outstanding long-term government bonds from the secondary market, reducing the amount of long-term bonds available for trading, which theoretically helps to lower long-end yields and alleviate the marginal impact of debt issuance on long-end rates; primary dealers and institutional investors holding related outstanding government bonds are the direct beneficiaries as sellers, able to liquidate their less liquid "off-the-run" securities at the Treasury's quoted prices. The broader context for this operation is the current macro environment, where geopolitical conflicts have raised inflation expectations, and the 10-year Treasury yield briefly surpassed 5%, prompting the Treasury to attempt to "support" long-end rates through bond purchases to prevent financing costs from spiraling out of control.

Source: Public Information