U.S. Treasury plans to repurchase up to $6 billion in long-term bonds, 30-year yield hits highest since 2007

To curb the recent rise in borrowing costs, the U.S. Treasury continues to support market liquidity through buybacks. The initial enhanced buyback conducted by the Treasury two weeks ago had limited effects in suppressing long-term bond yields, and the current planned action also appears unable to change the upward momentum of long-term yields.

On Wednesday, the 23rd, U.S. Eastern Time, the U.S. Treasury announced another round of long-term Treasury buybacks, with plans to purchase up to $6 billion in face value of 20- to 30-year U.S. Treasury bonds. The target bonds mature between November 15, 2046, and August 15, 2056. The operation will take place between 1:40 p.m. and 2:00 p.m. ET on Thursday, September 24, with settlement on September 25.

This is the Treasury's second enhanced buyback round with a maximum of $6 billion. On September 10, the Treasury conducted its first larger-scale long-term bond buyback with the same maximum target but ended up buying only about $5.2 billion of 10- to 20-year U.S. Treasuries, falling short of the cap. Media noted that this suggests there were not enough bondholders willing to sell at prevailing market prices at that time.

After the Treasury announced the buyback cap for Thursday’s operation, prices for long-term U.S. Treasuries in the secondary market continued to fall, and yields rose further. The 30-year Treasury yield climbed above 5.41%, reaching a new high not seen since last Tuesday and the highest since 2007, rising more than 10 basis points on the day.

Since late February, after the U.S. and Israel took military action against Iran, increasing energy costs have driven a general rise in global bond yields, intensifying market concerns over inflation and interest rates. At last week's meeting, the Federal Reserve decided to raise rates by 25 basis points—the first such hike in three years, passed unanimously by voting committee members. The dot plot released after the meeting showed that most policymakers expect another rate hike this year, underscoring the Fed's resolve to rein in price pressures.

In response to external criticism that expanding buybacks constitutes market intervention and cannot solve the fundamental issues with U.S. fiscal policy, Treasury Secretary Besant defended the measure. In an interview this Monday, he said that the enhanced buyback was a move prompted by what he considered a “deviation from equilibrium” in market pricing.

Besant noted at the time that the change in long-term yields since the program expansion had been relatively limited. From August 19, when the plan was announced, through September 21, the 30-year Treasury yield rose by only about 1 basis point.

Institute of International Finance warns: Buybacks cannot solve the fundamental U.S. debt problem

Earlier Wednesday, the Institute of International Finance (IIF), one of the world’s largest financial industry associations, warned that attempts at “financial engineering” cannot address the core issues behind U.S. debt.

In a report, IIF stated that interventions such as secondary market purchases “may provide temporary relief but cannot resolve the structural factors underlying ever-increasing debt.”

The last time the U.S. Treasury announced an increase in buyback size was September 9. At that time, the Treasury stated that the buyback cap would be $6 billion. While this is three times the initial $2 billion announced, some market participants had expected a larger figure, given the Treasury’s August 19 “at least double” guidance, which theoretically had no explicit upper limit.

In the end, the Treasury did not use the full $6 billion cap, instead purchasing about $5.2 billion in 10- to 20-year Treasuries. Treasury officials said this was due to insufficient competitive offers in the market. During this operation, investors submitted approximately $10.5 billion in bonds to the Treasury.

Given that the first enhanced buyback on September 10 fell short of the cap due to insufficient qualifying competitive offers, the market's focus has now shifted to whether the second $6 billion buyback will fully utilize the cap.

This means that as long-term yields once again approach prior highs, whether the Treasury will attract enough holders to sell bonds on Thursday, and whether the $6 billion cap will be fully deployed, will become key indicators in measuring the actual effectiveness of this buyback tool.