Treasury Triples Long-Bond Buyback Cap to $6 Billion, but Market Disappointment Sends 10-Year Yield to 4.85%

The U.S. Treasury raised the cap on its long-term bond buyback to $6 billion, triple the original plan, but the move fell short of market expectations, sending the 10-year Treasury yield as high as 4.85%.

Bloomberg reported on Sept. 9 that the Treasury set the size of its long-term nominal bond buyback scheduled for Sept. 10 at up to $6 billion. That is three times the previously planned $2 billion.

Treasuries continued to sell off after the announcement. The 10-year yield rose to 4.85% during the session, nearing its highest level since 2023. Concerns about inflation stoked by surging oil prices, expectations for Federal Reserve rate hikes and large fiscal deficits weighed on the market.

Some in the market had expected a larger buyback. Treasury Secretary Scott Bessent had publicly said earlier that purchases could exceed $4 billion per operation, fueling expectations of a much bigger expansion.

Steven Zeng, a strategist at Deutsche Bank, said the $6 billion size failed to deliver the "shock and awe" investors had expected. "It's like the Treasury has created a monster it now has to keep feeding," he said.

The Treasury said each of the six remaining scheduled long-term bond buybacks could total at least $4 billion. That matches the level it presented when it first announced the expanded buyback plan on Aug. 19.

Bessent recently stressed that the purpose of the buybacks is not to change the fair level of Treasury yields. Instead, the focus is on easing market volatility, preventing negative sentiment toward the Treasury market from becoming entrenched and improving liquidity.

Evercore ISI said the announcement suggests Bessent is acknowledging limits to the role buybacks can play. The Treasury is unlikely to be able to keep resisting the direction of yields set by the economy's fundamentals.

The Treasury's $39 billion auction of 10-year notes the same day drew a high yield of 4.834%, the highest level since 2007.

Still, the buyback program could be expanded again. The Treasury announced last month's policy to increase long-term bond buybacks separately from its regular quarterly refunding plan, and Bessent has described the effort as a "Treasury twist" aimed at stabilizing long-term yields.

Joseph Furtel, a portfolio manager at Neuberger Berman, said Bessent has been signaling through both words and actions that investors should not press too aggressively on 30-year Treasuries. He added that the buyback size could rise into the tens of billions of dollars and that there is no clear upper limit.