(Bloomberg) — Treasury Secretary Scott Bessent is set to reveal how far he’s initially willing to go restrain US bond yields via an expanded buyback program that has Wall Street dealers on edge.
The Treasury Department is expected to announce on Wednesday the size of the next day’s operation to repurchase outstanding 10-year to 20-year securities; past precedent indicates it would be at 11 a.m. in Washington. It will be the first such release since the Treasury shocked market participants Aug. 19 by saying it would “at least double” the $2 billion sizes it had penciled in just two weeks before.
Bessent has repeatedly declined to tip how big the Sept. 10 buyback will be, though his public remarks have helped fan expectations among many that it will exceed $4 billion. On Tuesday, he characterized the initiative as aimed at cooling “this fever that was building” in the market, in an apparent reference to a selloff that last month sent longer-dated yields to the highest in years.
With 10-year yields, which are key for US mortgage rates, now even higher than last month’s levels, stakes are high. Coming in at just $4 billion could prove a disappointment to investors, adding to selling pressure in the world’s biggest bond market.
But opting for a giant total — Morgan Stanley calculates $10 billion as a practical cap — could set a new baseline for subsequent longer-dated buybacks, with the next one due in two weeks. It could also suggest Bessent’s angst about yield levels has deepened further since last month’s surprise move.
A larger increase “would be an admission that the Treasury hadn’t thought through its hasty August 19 announcement in the first place,” Lou Crandall, a senior economist at Wrightson ICAP, wrote in a note to clients.
Crandall sees something in the $5 to $6 billion range as a plausible starting point, while acknowledging even larger increases wouldn’t be out of character given the rapid shifts in the Treasury’s strategy during the past few weeks.
Amplifying the immediate consequences of Wednesday’s news: it’s due to come just hours before the department’s next sale of 10-year notes, and a day before a 30-year bond auction.
The Treasury declined to respond to a request for comment on its upcoming announcement.
What Bloomberg Strategists Say…
“Traders will be digesting purchase sizes in real time, and larger-than-expected operations would likely be read as a stronger signal from Treasury. That could pull long-end yields lower initially, although the nominal size of the program remains small relative to the Treasury market. Swap spreads will offer a cleaner read on the market verdict.”
—Brendan Fagan, macro strategist
In the past, announcements for Treasury buyback operations contained largely technical information, such as the identifying CUSIP numbers of securities eligible for the operation. This time, besides the as-yet unknown size of Thursday’s purchases, dealers will also be on watch for any broader guidance on the program.
The Aug. 19 statement said an updated tentative buyback schedule “will be released at a later date.” Also left unclear last month was how the buybacks would be funded. Dealers had largely assumed the Treasury would issue more bills, which mature in up to 12 months. But there’s also been speculation the department could opt to lower its standing cash balance.
Morgan Stanley strategists caution buybacks cannot be uncapped, noting that funding constraints — especially if the Treasury relies on cash from its general account — likely put a ceiling around $10 billion per operation.
Officials have the discretion to accept less than the full amount once offers are made.
Wrightson estimated that boosting buybacks to $6 billion per operation would cut quarterly net issuance in the 20-year-plus sector by about 27%. Taking them to $10 billion each would slash supply by roughly 55%.
Bessent’s expansion of the long-dated buybacks program last month took investors by surprise because it was announced outside the Treasury’s quarterly announcement schedule. That’s fanned talk of a new, more activist style of US debt management, in contrast to the department’s long-held mantra of being “regular and predictable.”
The news, which came after 30-year yields rose to the highest level since 2007, initially triggered a rally in longer-dated debt. While such Treasuries have continued to outperform on a relative basis, rates across the yield curve have started rising again in recent weeks.
Many of the factors driving borrowing costs higher in the US and globally remain, including the risk of central bank policy tightening to rein in inflation and angst over fiscal deficits.
Given the way Treasury surprised market participants last month, some investors see the department refraining from any guidance beyond the upcoming buyback, and sticking to a case‑by‑case basis.
Barclays Plc strategists Anshul Pradhan and Demi Hu said the Treasury could even leave the maximum size open‑ended — “at least $4 billion per operation” — a move that would preserve flexibility but leave markets without a clear road map.
Bond markets have been relatively steady in recent sessions, but traders say any surprise in buyback size or cadence is more likely to show up in 30-year swap spreads than in outright yields. That’s because spreads tend to reflect supply shifts more directly, while bond prices remain driven by broader macro forces that have kept rates elevated globally.
–With assistance from Greg Ritchie.
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