US Treasury’s Plan Fails to Convince the Bond Market!
Yields on 10-year U.S. Treasury bonds jumped to their highest levels in about three years, after the Treasury Department’s plan to repurchase $6 billion in debt disappointed investors who had been betting on a larger intervention to curb rising borrowing costs. The U.S. Treasury said it would buy $6 billion in government debt in its first repurchase since Treasury Secretary Scott Bessent announced an expansion of the program last month, in an effort to support the bond market and limit the rise in long-term yields. The amount represents an increase compared to the Treasury’s previous commitment to double purchases of long-term bonds to at least $4 billion, but it fell short of estimates ranging from $8 billion to $10 billion circulating among Wall Street analysts this week. The U.S. Treasury announced it would buy up to $6 billion in long-term Treasury bonds in the first operation under an expanded repurchase program, a move reflecting Treasury Secretary Scott Bessent’s determination to curb the recent rise in borrowing costs. The maximum size of the operation is three times the $2 billion initially communicated to investors. The Treasury had abandoned that plan in a surprise announcement on August 19, stating it would work to “at least double the size of these operations.” The Treasury Secretary had affirmed that, although he could not change the price set by “market equilibrium” for Treasury bonds, his goal was to slow the pace of moves and prevent the entrenchment of a negative narrative that could harm the world’s largest bond market. Ahmed Asiri, financial markets strategist at Pepperstone, said the bond market has been resistant to Scott Bessent’s intervention attempts, and current yield levels reflect sound economic pressures and fundamentals. He added that a $10 billion repurchase plan would remain limited in impact compared to the massive $30 trillion size of the bond market. He noted that markets could pressure the Federal Reserve to raise interest rates by 25 basis points, while a potential hold could harm the long-term trajectory.
