U.S. long-term Treasuries sell off as buyback plan fails to calm markets

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U.S. Treasuries sell off

Highlights

U.S. Treasury will at least double buybacks of 10- to 30-year securities from $2 billion to $4 billion, but investors see intervention as insufficient.
30-year Treasury yield rebounds to 5.27% after Wednesday's decline, while U.S. national debt hits a record $40 trillion and deficits remain around 6% of GDP.
Analysts warn unscheduled buyback lacks strategic plan, potentially weakening appetite for U.S. assets and the dollar as foreign demand concerns rise.

Treasury buyback move meets scepticism

As reported by Financial Times, the U.S. Treasury says it will at least double its purchases of securities maturing in 10 to 30 years, raising those operations from $2 billion to at least $4 billion. The move follows market strain in long-term government debt, but the rebound in yields suggests investors do not see the intervention as sufficient on its own.

In New York morning trading on Thursday, the yield on 30-year Treasury bonds rises by as much as 0.07 percentage points to 5.27 per cent, reversing most of the 0.09 percentage point decline that follows Wednesday's announcement, before easing to 5.25 per cent. Bond yields move inversely to prices.

Treasury secretary Scott Bessent tells CNBC there is "a very good chance" the U.S. will begin to lower its fiscal deficit. He also says yields do not reflect underlying fundamentals and argues liquidity, especially in the 30-year part of the market, is very poor.

Analysts and investors remain unconvinced. Eoin Walsh, portfolio manager at TwentyFour Asset Management, says the intervention cannot succeed in isolation, while Keith Patton of Columbia Threadneedle Investments describes the plan as minuscule compared with the Federal Reserve's quantitative easing programmes.

Debt burden and dollar weakness deepen market concerns

The renewed selling underscores broader unease about the U.S. fiscal outlook as investors assess whether policymakers can contain inflation triggered by President Donald Trump's war in Iran. Those worries have hit longer-dated debt particularly hard in recent months, with the 30-year yield climbing from 4.9 per cent at the end of June.

The U.S. national debt reaches a record $40 trillion on Tuesday, according to Treasury Department data. The government has consistently run deficits of 6 per cent of GDP in recent years, and markets do not expect a near-term reduction because of Trump's tax cuts and his pledge to raise defence spending by more than 50 per cent to $1.5 trillion a year.

Joe Brusuelas, chief economist at RSM U.S., says buybacks are likely to prove temporary without fiscal consolidation through higher taxes, slower spending growth or outright spending cuts. Analysts at MUFG also say the Treasury's unscheduled announcement appears to lack a strategic plan and warn it could reduce appetite for U.S. assets, the U.S. dollar, or both.

The pressure extends beyond Treasuries. The yield on 30-year UK gilts rises 0.02 percentage points to 5.81 per cent after falling on Wednesday, while an index of the dollar against a basket of peers falls as much as 0.3 per cent on Thursday after a 0.8 per cent drop a day earlier before trimming some losses. Société Générale's Kit Juckes says foreign demand for U.S. assets is becoming a growing issue as debt held by the public reaches 100 per cent of GDP and deficits remain elevated.

Our earlier article on the U.S. Treasury’s decision to double long-dated debt buybacks explained how raising purchases for 10- to 30-year securities to at least $4 billion per operation was intended to support liquidity and ease pressure at the long end of the curve. We noted that the announcement initially pushed the 30-year yield lower and briefly improved risk sentiment, even as markets stayed focused on the $40 trillion debt milestone and persistent deficit concerns.

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