Aug. 19 (UPI) — The U.S. Treasury Department announced Wednesday that it will buy back about twice the usual amount of its bonds in a move to prevent rising interest rates on mortgages and consumer loans.
The department, which is led by Secretary Scott Bessent, said it will target the 10- to 20-year and 20- to 30-year portion of the market. Those bonds have faced a buyers’ strike since late June, CNBC reported.
Treasury said it will at least double the maximum size of its usual buyback, from $2 billion to “at least” $4 billion, an announcement from the department said. The buyback operation will be from Sept. 9 through Nov. 4.
The yields on longer-term debt have been at their highest levels since 2007, pushed up by war with Iran and other concerns, such as growing competition for financing with borrowers and growing federal deficits, Politico reported.
After the announcement, yields plummeted, while stock market futures spiked, CNBC reported.
The 10-year note dropped 6 basis points to 4.647% and the 30-year bond plunged 9 basis points to 5.196%. A basis point equals 0.01%. Yields and prices move in opposite directions.
It’s the latest move by Bessent to affect treasury yields.
The department conducted a joint operation with Japan to boost the yen, which was trading at its weakest against the dollar in about 40 years. He had warned in January that Japanese government bonds were causing issues in the U.S. treasury market.
The department also recently alluded to possibly issuing less longer-term debt in the future, Politico reported.
“This increase in buyback operation sizes reflects Treasury’s desire to provide greater liquidity support in longer-dated nominal sectors where there is consistent strong sponsorship from market participants, as evidenced by the significant volume of high-quality offers Treasury routinely receives in longer-dated buyback operations,” the department’s press release said.
The move “can help crowd in potential buyers tempted by the prior run-up in yields and force some near-term short-covering, while discouraging investors from going max short in the future for fear of being ambushed again,” Krishna Guha, head of global policy and central bank strategy at Evercore ISI, said in a client note, CNBC reported.
“But the operation changes almost nothing in terms of the fundamentals, in particular the unchanged need to finance the tidal wave of hyperscaler debt in addition to very large government deficits,” Guha added.
It could actually end up making the Federal Reserve‘s job of getting inflation back to 2% more difficult, said RSM Chief Economist Joe Brusuelas.
The buyback could artificially suppress yields and make controlling inflation more challenging.
“Bessent is a political actor. His interest is purely short-term and is organized around the upcoming election and not a return to price stability,” Brusuelas wrote.
