U.S. Treasury doubles some debt buyback operations for longer-dated bonds

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Treasury doubles debt buybacks

Highlights

U.S. Treasury doubles buyback operations in the 10- to 20-year and 20- to 30-year sectors, effective September 9 through November 4.
Treasury moves respond to strong investor demand for liquidity in longer-dated nominal bonds, with nearly $20 billion in offers during the most recent buyback.
After the announcement, the 30-year Treasury yield falls from Tuesday’s 19-year high of 5.34% to as low as 5.187%, its largest daily drop since late June.

Buyback increase takes effect in September

As reported by Reuters, citing the U.S. Treasury Department, the larger buyback operations will apply to the 10-year to 20-year sector and the 20-year to 30-year sector. The change is effective from September 9 through November 4, according to a Treasury statement.

Treasury says the increase reflects its aim to provide greater liquidity support in longer-dated nominal sectors where market participants consistently show strong demand. It says that demand is evident in the significant volume of high-quality offers it routinely receives in longer-dated buyback operations.

The department has for several years conducted scheduled purchases of older-vintage securities before their maturity dates to support liquidity in off-the-run bills, notes and bonds. It also says an updated tentative buyback schedule will be published at a later date.

Market reaction centers on long-end yields

The announcement comes a day after a sharp bond selloff pushes the 30-year Treasury yield to its highest level since 2007, amid worries over a possible escalation in the U.S.-Israeli war with Iran and growing concern about the U.S. fiscal outlook as total public debt outstanding nears $40 trillion.

Yields rise despite a previously scheduled $2 billion buyback operation of 20-year and 30-year bonds on Tuesday. On Wednesday, the 30-year yield eases from Tuesday's 19-year high of 5.34%, and falls further after the Treasury announcement to as low as 5.187%, marking the largest daily drop since late June.

Treasury records show Tuesday's 20- to 30-year buyback includes purchases of $1 billion of a bond maturing in 2048 and another $1 billion of two bonds maturing in 2051. Investors offer nearly $20 billion of bonds for Treasury to repurchase, while the next scheduled buybacks are set for September 10 for 10- to 20-year debt and September 24 for 20- and 30-year bonds.

Our earlier coverage of the surge in long-dated U.S. Treasury yields explained how a broad bond selloff drove the 30-year yield to multi-decade highs as investors demanded a higher term premium. We noted that mounting fiscal concerns tied to a nearly $40 trillion debt load, along with heavy government and corporate issuance and lingering policy uncertainty, were key forces keeping long-end borrowing costs elevated.

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