US Treasuries Erase Buyback Gains

Long-maturity Treasury yields rebounded on Thursday to erase the drop after the Treasury Department announced its larger bond and note buyback. The yield on the 10-year note rose to 4.7%, 5bps away from the 20-month high this week, and that on the 30-year bond rose to 5.25%. The Treasury stated it would at least double its long-maturity buybacks to $4 billion next quarter, adding to its efforts of compressing yields after the joint intervention on the Japanese yen by selling euros and the request for the Fed to increase the limit on its FIMA facility. Yields on the longer end of the curve had surged since July amid soaring debt issuance from AI companies and higher deficit spending by the federal government. Long-term yields also rose after Fed Chairman Warsh signaled that a rate hike may not be his preferred tool to combat higher inflation. Concerns of unanchored inflation were magnified by elevated energy prices during the US-Iran blockade of tankers in the Persian Gulf.

Long-term Treasury yields held their sharp decline after the Treasury Department announced plans to double the size of buybacks for long-dated securities. The 10-year Treasury yield traded around 4.64% after reaching a 20-month high of 4.75% earlier this week, while the 30-year yield fell below 5.2% after hitting a 19-year high of 5.34%. The government said it would at least double the size of liquidity-support buyback operations covering securities with maturities ranging from 10 to 30 years. Scott Bessent previously described the buyback program as an important tool for addressing market dislocations and improving liquidity. Treasury bonds came under heavy pressure in August as surging AI-related debt issuance, rising deficit spending and concerns over persistent inflation pushed up estimates for term premia. Meanwhile, minutes from the Fed’s July meeting confirmed that some policymakers favored raising rates this year to prevent stronger inflationary pressures from emerging later.

The yield on the 10-year US Treasury note fell to 4.65% on Wednesday from 20-month highs of 4.75% in the previous session after the Treasury announced it would double the size of buybacks on long-dated securities. The move only increased the operations to at least $4 billion, but it consolidated the department's efforts on intervening against high yields to limit the market's exposure to duration. Other measures included a joint intervention with Japan to support the yen by selling euros, undercutting Tokyo's yen defense by selling Treasury notes and bonds. On top of that, Secretary Bessent called for the Fed to increase its FIMA facility past the threshold of $60 billion, which would allow Japan to access dollar liquidity without selling Treasuries. Treasury bonds plunged in August as soaring AI-debt issuance, higher deficit spending, and risks of elevated inflation raised estimates on term premia. Meanwhile, FOMC minutes confirmed that some members see the case for higher rates.