Bessent Moves to Curb Yields; Markets React
US Treasury Secretary Scott Bessent has once again taken aggressive action to suppress long-term borrowing costs after Treasury yields surged to multi-year highs. The US Treasury Department announced plans to at least double the size of its buyback operations for 10- to 30-year bonds—a move coming just two weeks after the initial buyback schedule for the current quarter was released.
The announcement immediately sparked a rally in the bond market. The 30-year Treasury yield fell nearly 10 basis points to around 5.18%, retreating from levels not seen since 2007. The US dollar also came under pressure, recording one of its steepest declines in recent months as falling yields reduced the appeal of dollar-denominated assets.
The Treasury’s move comes amid concerns that high yields are beginning to exert tangible pressure on the US economy. Costs for mortgages, corporate loans, and government financing remain elevated, while the burden of federal debt interest payments continues to rise. The government is also contending with a bond market weighed down by heavy debt issuance, the conflict involving Iran, inflation risks, and a surge in corporate funding needs for AI investments.
The expanded buyback program is set to begin on September 9. Previously, the Treasury had projected repurchasing up to $38 billion in older—or "off-the-run"—securities to support liquidity. With the initial schedule for the 10- to 30-year segment covering approximately $14 billion, the new policy could potentially add at least another $14 billion to that figure.
This strategy is drawing comparisons to a Treasury-led version of "Operation Twist." If the long-term bond buybacks are financed through the issuance of short-term Treasury bills, the government effectively reduces the duration of outstanding debt in the market. The effect mirrors past Federal Reserve policies aimed at suppressing long-term interest rates and stimulating economic activity.
However, the long-term effectiveness of this policy remains in question. Long-term yields are influenced not only by liquidity but also by inflation expectations, economic outlook, the government deficit, and geopolitical risks. As long as inflationary pressures and the conflict involving Iran persist, any decline in yields resulting from buybacks could prove temporary.
Newsmaker Analysis: The aggressive buyback policy signals that the US government is increasingly serious about preventing long-term yields from rising too high. In the short term, this move tends to benefit bonds, stocks, and gold while exerting downward pressure on the US dollar. However, if the market perceives this policy as an excessive attempt to replace long-term debt with short-term debt, concerns regarding the government's financing structure and inflation could resurface. Market attention will now shift to whether 10-year and 30-year yields can maintain their lower levels once the initial impact of the buybacks fades. (arl)
Source: Newsmaker.id
