US Treasury Secretary Scott Bessent made a fresh attempt to rein-in long-term borrowing costs from multi-year highs, sending Treasury yields and the dollar down. Just two weeks after releasing its planned schedule for buybacks this quarter, the Treasury Department on Wednesday said it’s “increasing, by at least double, the size of liquidity support buyback operations” for securities dated from the 10-year to the 30-year sector. The new plan drove the US dollar to the weakest in three months. It also pushed yields on the 30-year bond lower by as much as 10 basis points to 5.18%, moving it away from its highest level since 2007. Twenty-year yields also dropped, leaving investors with tepid demand for a $16 billion auction of the securities. Elevated yield levels have kept US mortgage and other borrowing costs high, posing a headwind for economic growth and a potential problem for President Donald Trump and his fellow Republicans ahead of the November midterm elections. They’ve also driven up the Treasury’s own borrowing costs, worsening what was already a steep trajectory for government debt. “This administration needs a win, and maybe that comes in the form of artificially trying to keep long Treasury rates contained,” said Jack McIntyre, a portfolio manager at Brandywine Global Investment Management. “They have to try something. Sentiment around the long-end globally is about as bearish as I have seen in a very long time.” How long lasting the impact will prove remains to be seen. “What really gets long rates lower is a slowing economy or resolution on the Iran conflict, and I’m not sure we’re there yet,” McIntyre said. Bessent last year invoked the buyback program as part of the department’s “big toolkit we can roll out” if needed to address dislocation in the Treasuries market. He’s also repeatedly said, since taking office, that his key financial-market benchmark is 10-year yields. Last November, he said, “my job is to be the nation’s top bond salesman — and Treasury yields are a strong barometer for measuring success in this endeavor.” Officials made the announcement as long-dated government bond yields around the globe rose to significant levels this week — with the US 30-year trading at its highest since 2007.
A 10-year auction last week drew the highest financing cost at that tenor since 2007, while a 30-year sale a day later was at the greatest yield since 2001.
What Bloomberg Strategists Say…
“The buyback is a clear signal the Treasury is watching markets and is concerned about long-end yields. That sort of increase in flow cannot in and of itself turn the tide of long-end selling, though the signal may be sufficient to prompt further short-covering.”
—Cameron Crise, macro strategist. For more analysis, see MLIV.
“If yields go too far, Treasury will try and fight it — and now we know where some pain points are,” said John Briggs, head of US rates strategy at Natixis North America. The ramped-up buybacks will begin Sept. 9, the Treasury said. Two weeks ago, the department said it anticipated purchases of up to $38 billion of older securities, known as off-the-runs, for “liquidity support.” It’s tentative calendar for Sept. 9 through Nov. 4 indicated up to $14 billion total buybacks of 10-year to 30-year Treasuries. At least doubling that total would suggest an extra $14 billion or more. The US Treasury says it will be buying back more longer-dated debt, a move designed to stop the surge in long-end yields. Former St. Louis Fed President James Bullard says this seems like an important tactical move, but it won’t change the fundamentals. He speaks on “Bloomberg Surveillance.”
It also comes just days after the Treasury paid out about $85 billion in interest to bondholders, the largest sum in records tracked by Bloomberg.
NN: Our upcoming Zero Trade is a guaranteed money maker. Get your ducks in a row!.. NOW!!