US government bond yields have fallen sharply after Treasury secretary Scott Bessent stepped in, saying the department will more than double its government debt repurchases.
With global bond markets under pressure and yields surging to levels not seen in nearly two decades in recent days, the announcement brought some relief to the market.
The Treasury department will buy up more debt in the 10- to 20- year and 20- to 30-year sections of the market. The government will “at least double” the maximum size of its buyback operations, from $2bn to “at least” $4bn, the department said.
Yields plunged following the announcement while stock market futures rose sharply.
The benchmark 10-year bond fell 6 basis points to 4.647% while the 30-year “long” bond tumbled 9 basis point to 5.196%. (A basis point equals 0.01%. Yields move in opposite direction to prices.)
Neil Wilson, investor strategist at Saxo UK, said:
double quotation markCall it the Bessent Put…Kevin Warsh’s Fed might not want to give forward guidance on rates but Treasury and Bessent clearly do!
We have seen huge move in bonds with the curve sharply flattening as the US Treasury announced upscaled buybacks to support the long end of the curve. It’s provided some immediate relief to the long end of the Treasury curve and eased some of the pressure building up lately.
This is probably more about the signal the administration wants to send to the market than the size of the operation – it’s small potatoes vs the $40tn US government debt. I see it as a very strong sign that the Treasury has decided higher US yields are unacceptable, and that the recent blowout in the long end is undesirable and needs counteracting by means other than a) raising short-term rates to re-anchor expectations or b) reining in fiscal drift. Clearly Donald is not happy yields have blow out…
Treasury said it is increasing, by at least double, the size of liquidity support buyback operations for longer-dated nominal coupon securities, ie across the 10-30 year range where buyers have been absent for at least a month.
These operations are a kind of mini- or quasi-QE by supporting prices and lowering yields, resembling Fed asset purchases albeit they don’t work the same way; the effect seems to be similar. It resembles Operation Twist by seeking to support the long end and improve liquidity, which could put more pressure on the USD if the market interprets this as meaning easier financial conditions because it allows the Fed to avoid a monetary policy response and implies official support for the Treasury market; or in essence fiscal dominance.
However, this might complicate the US Federal Reserve’s job, he said.
double quotation markFederal Open Market Committee minutes coming up later…but if Kevin Warsh didn’t want to take signals from markets then how does this help? Clearly this clouds the picture for the Fed.