The US Department of the Treasury announced yesterday that it will more than double the volume of its public debt buybacks, a move that triggered a sharp drop in bond yields at a time of high market tension. The 30-year yield, which was nearing 5.34%, fell to 5.20%. The 10-year bond yield also dropped by 10 basis points, from 4.75% to 4.65%, driven in large part by the closing of short positions by investors betting that US debt yields would continue to rise.
According to the Treasury Department’s announcement, the Government will “at least double” the maximum amount of its buyback operations, increasing it from $2 billion to at least $4 billion for each of these segments. This takes effect on September 9 and will run through the remainder of the current refunding quarter ending November 4.
The $4 billion figure applies per individual operation. It is not an overall daily, monthly, or quarterly cap. The Treasury organizes specific auctions on set dates within its official calendar (generally between 1 and 2 executions per month for each long segment of the curve). Starting September 9, each time the Treasury conducts a buyback session in the 10-to-20-year tranche, it may purchase up to a maximum of $4 billion in that single session. The same applies when it convenes a session for the 20-to-30-year tranche.
Purchasing older, less-traded securities enables primary dealers (market makers) to clean their balance sheets of hard-to-move assets, freeing up capacity for new purchases at narrower spreads.
With fixed-income markets under pressure and yields surging to levels not seen in nearly 20 years, the decision targets the longer-duration and therefore most sensitive part of the US debt market curve—the 10-to-20-year and 20-to-30-year tranches—which have suffered a noticeable lack of buyers since late June.
