The US Treasury plans to buy back as much as $6 billion of government debt in its next operation. The bonds will have maturities of 10 to 20 years. This is three times larger than the previous maximum of $2 billion. Treasury Secretary Scott Bessent had earlier indicated a $4 billion minimum for the expanded buyback plan.
The move is aimed at improving trading and liquidity in longer-term US government bonds.
There were expectations in the market that the buyback could be as large as $10 billion. Garvey suggested that the $6 billion move could be only the first step and said, “I suspect this is just the opening gambit. US government debt recently crossed $40 trillion, while monthly budget deficits have recently been much larger than federal revenue. This means the $6 billion buyback is more of a temporary measure, while the bigger debt and borrowing problems remain, according to Reuters.
Padhraic Garvey, head of global rates and debt strategy at ING in New York, said the market felt the Treasury could have made a stronger statement, according to Reuters. Jim Barnes, director of fixed income at Bryn Mawr Trust, said investors may have been unsettled by Treasury’s decision to actively try to control pressure on long-term bond yields. He said the move could make investors think the problems caused by large deficits and high government debt are more serious than previously believed. Barnes said the size of the buyback was not the main issue. Tony Miano, investment strategy analyst at Wells Fargo Investment Institute, said several forces are pushing yields higher.
Some investors had expected the Treasury to announce a much larger operation. The concern comes as the US government continues to carry a huge debt burden. This has increased worries about how much government debt the market can absorb, especially at longer maturities. The bigger point was that the Treasury was actively stepping in to support the market. Analysts say Treasury buybacks cannot solve the main reasons behind rising long-term yields. These include widening US federal deficits, persistent inflation and higher bond issuance around the world.
