The U.S. Treasury Department will buy back $6 billion in government bonds on Thursday, less than the top of dealer forecasts. Long-dated yields rose anyway, and one trader called the market reaction underwhelmed.
The Treasury Department said Wednesday it will buy back $6 billion in U.S. government debt, exceeding the amount it had previously flagged, in an effort to contain bond yields. It is the first operation since Treasury said last month it would at least double its buybacks from a regular $2 billion pace.
Dealers had priced in even more
Many Wall Street dealers had expected Treasury to announce buybacks in a range of $6 billion to $8 billion, so Wednesday's figure landed at the low end of that band. Treasury also said future operations will total at least $4 billion. The current buyback targets 10- and 20-year notes, a less liquid part of the market.
According to Mike Lorizio, head of U.S. rates and mortgage trading at Manulife Investment Management, speaking in a call after the announcement: "The market seems to be underwhelmed".
Yields climb despite the intervention
Market reaction was negative. The 20-year yield climbed to 5.314%, and the 30-year bond rose 5 basis points to 5.307%.
The benchmark 10-year note edged up to 4.84% Wednesday. The Financial Times put the same note's rise at 0.05 percentage points to 4.85%, its highest level since late 2023.
Treasury Secretary Scott Bessent surprised markets last month with the expanded buyback plan, saying it responded to a steep rise in 30-year yields that eventually hit a 19-year high of 5.34%. He said the move did not reflect fundamentals and that traders had acted on bad information. The actual buyback will take place Thursday in a 20-minute operation concluding at 2 p.m. ET.
A test of Treasury's credibility
The Financial Times reported the buyback program has faced criticism from Wall Street, with investors warning it could undermine Treasury's credibility and work against the Federal Reserve's efforts to tame inflation. Without additional guidance on further operations, this likely will add a little more volatility to the market, Lorizio said, calling it a learning moment for Treasury.
Analysts trace the surge in long-end yields to the aftermath of the Federal Reserve's July meeting, when the Fed held rates steady even though traders had expected a hike under new Chairman Kevin Warsh.
Sources: MarketWatch, CNBC, Financial Times
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