Treasury yields dropped Monday after a report that the department could tap its $1 trillion General Account to fund an expanded bond-buyback program. The move follows Treasury Secretary Scott Bessent's extended buyback plan for longer-dated debt, and it lands just as markets turn to Federal Reserve Chair Kevin Warsh's Jackson Hole speech later this week.
Treasury yields fell on Monday after a report said the department could use its $1 trillion General Account to fund its plans to ramp up government bond purchases, citing two Treasury officials. The 10-year Treasury note yield dropped more than 3 basis points to 4.704%, while the 30-year yield lost more than 4 basis points to 5.234% after hitting levels last week not seen since 2007.
Officials stay quiet on the size
The officials did not say how much of the General Account would be used, but the report follows Bessent's extended debt buyback program aimed at easing pressure on the long end of the yield curve; yields initially fell before rebounding higher. According to CNBC, Richard Reyle, chief investment officer at Questar Capital Partners, said: "Interest rates may be the single most important thing in our economy right now."
Bigger buybacks, unchanged auctions
Separately, the Treasury is doubling the size of its liquidity support buybacks for longer-dated debt while leaving its regular auction schedule untouched. An announcement made on August 19 raises the maximum buyback size from $2 billion to at least $4 billion per operation for nominal coupon securities maturing between 10 and 30 years, with the expanded operations starting September 9 and running through November 4.
The Treasury's most recent quarterly refunding, dated August 5, confirmed auction sizes remain unchanged at $58 billion in 3-year notes, $42 billion in 10-year notes and $25 billion in 30-year bonds, totaling $125 billion. Of that, roughly $96.3 billion goes toward refunding maturing securities, while the remaining $28.7 billion represents net new borrowing. The buybacks target off-the-run securities that have grown illiquid on dealer balance sheets, and the approach builds on infrastructure the Treasury first put in place in 2024.
Longer-dated Treasuries have been under pressure since late June, with what market participants have described as a buyers' strike in longer-duration debt. As a result, dealers have ended up holding more inventory than they would like, straining balance sheets and making the market less efficient.
Jackson Hole looms
Central bankers and economists will gather at the annual Jackson Hole Symposium this week, with traders looking ahead to Warsh's keynote address, due on Friday, as sustained inflation pressures and the U.S.'s $40 trillion debt loom over the event. The speech follows a raft of fresh economic data releases this week, including the July core PCE price index and the second quarter GDP estimate.
Sources: CNBC, Crypto Briefing
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