Treasury's $6B Bond Buyback Fails as Yields Keep Rising

The US Treasury's $6 billion buyback of government debt failed to calm markets, with 10-year Treasury yields rising to their highest since 2023.

Treasury Secretary Scott Bessent announced Wednesday that the department would buy back $6 billion of longer-dated government debt, part of a plan he first unveiled on 19 August to at least double the treasury's typical repurchase operation. The idea was straightforward: removing bonds from the market should support prices and push yields down. Instead, the opposite happened. According to CNBC, the 10-year Treasury yield rose 2 basis points to 4.824% and hit its highest level since November 2023, when it reached a high of 4.935%. The 30-year bond yield also climbed 2 basis points to 5.28%, while the more policy-sensitive 2-year yield rose to 4.417%. The Guardian reports that the 30-year yield hit about 5.2%, which it characterizes as the highest yield since the 2008 financial crisis.

The rebuff was partly a matter of expectations. CNBC reports that some on Wall Street believed the repurchases would be even bigger, with Peter Boockvar of The Boock Report saying the market had expected the buyback to be as much as $7 or $8 billion. 'Treasury announced buybacks less than hoped for,' according to a Mizuho Securities note cited by CNBC, which added that Bessent is 'facing an uphill battle, in terms of trying to move against the general momentum of the market.' Beyond the size question, fundamentals are doing the heavy lifting. Rising inflation and uncertainty from the war in Iran have spooked investors away from US bonds, historically considered one of the safest investment vehicles, and CNBC notes yields rose alongside oil prices as Brent crude climbed above $100 per barrel for the first time since late July.

One partial counterpoint emerged late in the session. According to CNBC, Ian Lyngen of BMO wrote that a strong auction of 10-year Treasurys helped rates ease from their highs, with notes going into the bidding deadline near session lows and the market rallying in follow-through once results landed. But the bounce only trimmed the day's losses rather than reversing the trend. The broader backdrop remains punishing: the Guardian notes that US government debt reached $40 trillion in August for the first time in the country's history — double the level from just ten years ago — meaning heavy supply keeps weighing on the market even as the Treasury tries to absorb some of it through buybacks. The momentum of the selloff, as Mizuho framed it, is adjusting to that fundamental backdrop rather than to Treasury operations.

Rising treasury yields feed directly into borrowing costs, since loans including mortgages, student debt and car loans are often tied to the bond market — a pressure point that coincides with 'mortgage rates' trending among the day's top finance searches. The Guardian reports that the move puts more pressure on the Federal Reserve to deal with inflation, which has been pushed up by the war in Iran: annualized inflation hit a three-year high in May before easing to 3.4% in July, still 0.7% higher than a year earlier, largely because of higher energy prices. Fed chair Kevin Warsh, who took the role in May, is in a bind: the Guardian notes Trump warned the Fed 'must get smart' and lower rates, while Warsh affirmed at Jackson Hole in August that it was 'the Fed's job to deliver stable prices' without saying whether rates would rise.