When the US Treasury revived buybacks in 2024, the mandate was intentionally narrow: cash management buybacks to smooth seasonal cash swings, and liquidity support buybacks to retire ageing, illiquid issues and shore up market resilience.
Treasury debt managers, in line with the Treasury Borrowing Advisory Committee, said on record that buybacks weren’t a yield-management. Sizes were pre-announced quarterly and deliberately mechanical, so no operation could be interpreted as an effort to time markets.
However, in late August, the US Treasury has doubled the size of its 10- to 30-year buyback operations to at least $4bn from $2bn, effective 9 September through 4 November, after the 30-year yield touched its highest level since 2007. US Treasury Secretary Scott Bessent called it keeping the market ‘in equilibrium’ during ‘a quiet period in a thin market’ – language that, in fairness, never mentions yields, borrowing costs or the soaring deficit.
‘Open-ended and opposite’
The case that the Treasury is using this facility for something other than its original stated purpose comes from actions rather than words – particularly in light of Bessent’s recent Japanese yen intervention and call for expanded usage of the Federal Reserve’s Foreign and International Monetary Authorities facility. The US Treasury didn’t wait for the next refunding, it instead upsized mid-cycle, days after the rise in the 30-year yield. Bessent didn’t stop there, later telling reporters it could be ‘more than $4bn per issue’ – open-ended and the opposite of the mechanical sizing the programme was built on.
The clearest sign came from the reaction to the announcement itself, which quickly moved the 30-year yield down 15 basis points. The 10-year yield also fell some 10 bp. The buyback announcement became the week’s biggest headline trade – exactly what the Treasury has historically wanted to avoid. Days later, yields had considerably retraced, stabilising after a brief surge following the announcement that the stock of US debt had reached $40tn.
Ultimately, buybacks will not have a meaningful, lasting effect on long yields. Longer term yields are rising because real rates are correcting upwards from a suppressed post-2008 financial crisis baseline towards a structurally higher neutral rate – massive fiscal deficits, deglobalisation, demographics and artificial intelligence capital demand, plus tariff shocks are adding a stickier inflation premium.
‘Regular and predictable’ issuance
Buybacks remain a debt-management tool, neither a monetary one, nor a tool to help the US Treasury manage the yield curve. Funding buybacks out of bill issuance shifts exposure towards front-end rollover risk rather than reducing it. At most, buybacks retire off-the-run paper and ease dealer balance sheets at the margin.
That’s what makes the break with the past precedent costly. Since the 1970s, the US Treasury has been committed to ‘regular and predictable’ issuance. Since then, it has avoided trying to time the market. Rather, it issues and buys back according to a calendar rather than a desired price level.
Going forward, Bessent finds himself on a slippery slope. Once markets expect the Treasury to lean on buybacks when yields spike, a muted response next time will become its own negative signal, reducing confidence in the Treasury’s debt management. It will be akin to a debt-management version of a ‘Treasury put’, however, unlike the Fed, the Treasury can’t print money to make good on that. It can only borrow more at the front end, which is its own constraint and increases rollover risk.
None of this changes the core conclusion that the fundamentals driving yields higher remain untouched. Reducing our massive fiscal deficits and taming inflation are the keys to lower yield. Further, issuance strategy – not a repurposed liquidity facility – is the right tool for managing the weighted average maturity of Treasury debt.
The US Treasury spent some of its hard-won credibility in a buyback misadventure, particularly as a facility that worked precisely because it was boring, for a signal that likely buys very little.
Jamie Franco was formerly Head of Cross Asset Research and Sustainable Investment for TCW. She served at the US Treasury for a decade in international and domestic affairs, including on Treasury debt management policy.
Image credits: The White House
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