Treasury Triples Buyback to $6 Billion, but US Bond Yields Jump; BBH Says It’s a ‘Toy Gun in a Tank Battle’

Treasury to Buy Back Up to $6 Billion of Long-Term Debt

Below Wall Street Expectations of $10 Billion

‘Not Enough to Counter Massive Fiscal Deficits’

The US Treasury said on Sept. 9 it would triple the size of its long-term bond buyback program to help stabilize Treasury yields, but yields rose instead as bond prices fell. The market moved in the opposite direction of Treasury Secretary Scott Bessent’s pledge a day earlier to restore balance to the bond market. Traders sold Treasuries after judging the buyback plan too small to meet expectations. That has fueled concern that each new signal from Bessent on rate stabilization is only prompting investors to demand even stronger action.

The Treasury said it would buy back up to $6 billion of Treasuries with maturities of 10 to 20 years. That is triple the previous $2 billion limit for long-dated buybacks. The operation will be conducted from 1:40 p.m. to 2 p.m. Eastern time on Sept. 10.

Bessent said on Aug. 19 that the Treasury would expand buybacks to support market liquidity and stabilize rates after the 30-year Treasury yield jumped to its highest level since 2007. Two days later, he said the government had “many policy tools” and indicated the existing $2 billion buyback would be increased to “at least $4 billion.” He defended the policy again on Sept. 8, saying his role was to return market imbalances to equilibrium.

Yields rose even after the Treasury’s announcement. The 10-year Treasury yield climbed 0.03 percentage point from the previous day to 4.83%, the highest since Oct. 31, 2023. The 30-year yield also rose 0.03 percentage point to 5.28%.

Investors appeared disappointed by the size of the buyback. Some investment banks had expected the Treasury to announce repurchases of $7 billion to $8 billion, with forecasts running as high as $10 billion.

Elias Haddad, head of global markets strategy at BBH, said the Treasury was “bringing a toy gun to a tank battle.” Deutsche Bank strategist Steven Zeng said investors were disappointed because the measure fell short of the “shock-and-awe scale” the market had expected. The Treasury appears to have created a monster that now has to be fed continuously, he added.

Wall Street had already been skeptical that Treasury intervention would work. Stanley Druckenmiller, chairman of Duquesne Family Office and described as a mentor to Bessent, wrote recently in The Wall Street Journal that artificially suppressing long-term rates does not address the root causes of rising yields: fiscal deficits and government debt.

That has prompted calls for a more fundamental solution. Mark Spindel, chief investment officer at Potomac River Capital, said the market had seen through Bessent’s bluff. Massive federal deficits and concern over the Federal Reserve’s ability to contain inflation are overshadowing his efforts, he said. Bloomberg News said difficult decisions are needed, including steps to restore fiscal discipline, even if they do not produce immediate results.

Hwang Jung-soo, New York correspondent, Korea Economic Daily, hjs@hankyung.com