The U.S. Treasury doubled its long-term debt buybacks to $4 billion per operation after yields hit near two-decade highs, while Federal Reserve Chair Kevin Warsh kept his focus on the Fed's 2% inflation target. The two moves have raised questions over whether Treasury and Fed policy are pulling in the same direction as government debt tops $40 trillion.
The Treasury doubled the size of its buybacks for securities with maturities between 10 and 30 years to $4 billion per operation, after long-term Treasury yields climbed to their highest levels in nearly two decades. Treasury Secretary Scott Bessent said the program aims to give the long-term bond market greater liquidity.
Yields swing after the announcement
Yields initially fell after Wednesday's announcement, before moving higher again on Thursday. Bessent said the Treasury could expand its purchases further if needed. The increase comes as U.S. government debt reached a record $40 trillion, with demand for capital from companies building artificial intelligence infrastructure adding competition in debt markets.
Bessent rejected suggestions that the buybacks conflict with Federal Reserve policy. He said the Treasury and Fed would coordinate over any balance-sheet changes, while maintaining that potential interest-rate increases were a separate matter from the Treasury's decision.
Warsh holds the line on inflation
Warsh led the Federal Open Market Committee to a 9-3 decision in July to keep interest rates at 3.5% to 3.75%. Minutes from the meeting showed policymakers remained divided over whether further tightening may be required.
According to the minutes: "Many participants assessed that policy tightening would likely be necessary if inflation did not decline." Some officials also questioned whether current financial conditions were restrictive enough to return inflation to the Fed's 2% target.
Annual U.S. inflation eased to 3.4% in July from 4.2% in May but remained above the central bank's target. Warsh has continued to pledge price stability while giving limited guidance on his preferred path for interest rates. Economist Gregory Daco said uncertainty remains over how closely Warsh and Bessent will coordinate as both institutions respond to conditions in the bond market.
Analysts see a high bar for Fed intervention
Market participants currently see little evidence that the Treasury market needs direct Fed intervention. Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, said the threshold for market-stabilizing purchases remains high because markets are not showing severe liquidity problems.
Michael Feroli, chief U.S. economist at J.P. Morgan, said the Treasury's move does not prevent the Fed from controlling short-term rates, which remain its main policy tool. Still, questions persist over how Treasury's effort to ease long-term borrowing costs squares with the Fed's campaign against inflation.
Source: CoinGape
Trading involves risk.
Risk Disclaimer
