U.S. Treasury buyback expansion talk fails to curb long-bond yields

Traders Union
All News
Financial News
Treasury buyback impact on yields

Highlights

Bessent signals potential expansion of the Treasury bond buyback beyond $4 billion, but long-bond yields quickly resume climbing to multi-decade highs.
Analysts including Evercore ISI, Jefferies, and JPMorgan criticize the effectiveness of buybacks, with JPMorgan warning the main impact may be higher risk premia.
The U.S. budget deficit hits $432 billion in July and total debt surpasses $40 trillion, with major equity indexes posting weekly losses as Wall Street sentiment weakens.

Buyback plan faces immediate market skepticism

As reported by CNBC, Bessent says in an exclusive interview on Thursday that the Treasury could expand its bond buyback operation beyond the initial $4 billion. He tells Sara Eisen that current yields do not reflect market fundamentals and adds that liquidity, particularly in the 30-year bond, is weak.

His comments briefly ease yields, but the move quickly fades as the bond market resumes pushing higher toward multi-decade peaks for long-dated 30-year debt. Analysts respond critically, with Evercore ISI saying the action will have little enduring impact and could backfire, Jefferies calling it a hastily made decision, and JPMorgan saying in a client note that the more lasting effect may be higher risk premia.

Speaking on Squawk Box Asia on Friday, JPMorgan's James Sullivan says the step is a little bit like paying a mortgage with a credit card, arguing that the mismatch may become more obvious over time. That view underscores broader skepticism about the effectiveness of Bessent's policy toolkit.

Deficit debate and broader market reaction

Bessent also says there is a very good chance the U.S. has seen its budget deficit peak under President Donald Trump. Data shows the deficit tops $432 billion in July, while U.S. debt reaches $40 trillion for the first time on Tuesday.

He rejects concerns over that threshold, saying there is nothing magic about the $40 trillion figure and arguing that the economy can grow its way out of the debt burden. The remarks come as Wall Street weakens on Thursday, with the S&P 500 down 0.9% and the Nasdaq Composite falling 1%, leaving both indexes on track for weekly losses, while the Dow Jones Industrial Average is also down 1.8% week to date.

Futures point to a muted open on Friday. Across Asia-Pacific, trading is mixed in the final session of the week, while modest gains for European stocks are still set to leave the region's major equity markets in the red for the week.

In our earlier article on the U.S. Treasury’s expansion of long-dated bond buybacks, we explained that boosting purchases of 10- to 30-year securities to at least $4 billion per operation was aimed at improving liquidity and easing pressure at the long end of the curve. We noted that the initial dip in the 30-year yield quickly reversed as investors stayed focused on the $40 trillion debt milestone, persistent deficit worries, and concerns the move lacked a clear strategic plan.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.