The bond market has been sending a warning signal this summer. On Wednesday, the Treasury Department responded.
After a bond market selloff drove long-term U.S. bond yields to their highest level in years, the Treasury Department announced today that it is at least doubling its planned buybacks of longer-term government bonds, from a maximum of $2 billion to at least $4 billion. The change will start on September 9 and run through November 4, the day after the midterm elections.
“This administration needs a win and maybe that comes in the form of artificially trying to keep long Treasury rates contained," Jack McIntyre, a portfolio manager at Brandywine Global Investment Management, told Bloomberg. "They have to try something. Sentiment around the long-end globally is about as bearish as I have seen in a very long time.”
The surprise announcement came just weeks after the Treasury Department had issued its quarterly “refunding” announcement, detailing its near-term debt-management plans. That suggests that the recent bond selloff really did set off some alarm bells at the Treasury, which said in its announcement that its move is meant “to provide greater liquidity support” at the long end of the bond market.
The announcement had the desired immediate effect of lowering longer-term yields, which had been rising because of concerns about persistent inflation and higher oil prices due to the war with Iran as well as worries about the U.S. budget deficit and rising debt. The yield on the benchmark 10-year Treasury, which had been just under 4% at the end of February, topped 4.7% earlier this week, a sizable move for the bond market. And the 30-year Treasury yield this week reached its highest level since June 2007, before the financial crisis of 2008 sent interest rates plunging toward zero. Both fell back on Wednesday following the Treasury Department’s announcement.
Higher yields make it more expensive for the government to borrow at a time when the national debt just crossed $40 trillion and the annual budget deficit is expected to top $2 trillion. Interest on the federal debt cost the government more than $1.2 trillion for fiscal year 2025 and has already cost nearly as much with more than a month remaining in fiscal year 2026. The higher yields also act as a drag on the economy, raising the cost of borrowing to buy a house, for example, or grow a business like, say, a new AI data center. So-called “hyperscalers” — the tech giants that are building massive data centers for various uses — have been issuing new debt at a rapid clip, competing with government bond issuance and also making them highly sensitive to higher rates.
Despite the initial response in the bond market, some analysts warn that the Treasury Department’s desired shift may not last and that the buybacks could even backfire or may complicate the Fed’s fight against inflation.
“The operation changes almost nothing in terms of the fundamentals, in particular the unchanged need to finance the tidal wave of hyperscaler debt in addition to very large government deficits,” analyst Krishna Guha and colleagues at Evercore ISI wrote in a note to clients cited by CNBC.
Wall Street analysts expect the Treasury Department to offset its increased buybacks by issuing more short-term debt. “This is NOT a debt paydown, it is just a rearrangement of the maturity schedule of Treasuries,” market strategist Peter Boockvar wrote in a note to clients. Boockvar noted that the changing mix of debt could actually raise the government’s interest expense.
Investors’ outlook on U.S. debt may also not be much changed by the Treasury action.
“If you’re a medium- or long-term investor, what you really want to see to buy long bonds is an improvement in the deficit outlook,” Steve Englander, an economist and strategist at Standard Chartered, told the Financial Times. Other analysts said that a resolution to the Iran war or a slowing economy may be needed to really drive rates lower at the long end of the yield curve.
A challenge for the new Fed chair: Federal Reserve Chair Kevin Warsh has suggested that the central bank welcomes higher yields as a way for the market to rein in economic activity and help curb inflation instead of Fed policymakers having to take action. Warsh’s comments, part of a new communication strategy and approach to setting monetary policy, caused bond yields to surge.
“The market was leading with this notion that we don't necessarily have to see a hike in the Fed funds rate because the longer end of the bond market is doing the work for the Fed,” Wilmington Trust senior bond portfolio manager Wil Stith told Yahoo Finance. “Well, now we have the Secretary of the Treasury sort of rolling that back.”
The bottom line: Treasury Secretary Scott Bessent continues to try to lower long-term borrowing costs, but while Wednesday’s move may have jolted the bond market, many analysts are skeptical that the government’s stepped-up buyback program — still small compared to the overall size of the Treasury market — will keep rates down over the longer term.