U.S. Treasury Secretary Scott Bessent announced on Wednesday that the agency plans to purchase up to $6 billion in long-term government bonds in a bid to lower rising yields and reduce borrowing costs. The Treasury Department previously committed last month to at least double its bond buybacks to $4 billion to support prices. Elevated Treasury yields increase borrowing expenses for businesses and consumers while putting pressure on stock prices. Mike O’Rourke, chief market strategist at JonesTrading, noted that the Treasury aims to limit 20- to 30-year yields and place downward pressure on 10-year yields by repurchasing older, less liquid bonds. O’Rourke pointed out that growing U.S. government debt is the primary driver of rising yields, with the national debt having exceeded $40 trillion in August after doubling in under a decade. He argued that tinkering at the market’s periphery is not a real solution. Columbia Business School economist Brett House agreed that the buyback fails to address the underlying issue of a large U.S. deficit requiring financing. House explained that unless Bessent compels the Federal Reserve to print money for the purchases, the funds come from Treasury revenues, leaving the growing deficit and subsequent debt issuance unresolved. Meanwhile, the 10-year Treasury rate climbed to 4.85% from 4.80% late Tuesday, marking its highest level since October 2023, while the 2-year Treasury yield rose to 4.42% from 4.39%. Because bond yields move inversely to prices, rising yields indicate investors require higher returns. Other Wall Street analysts echoed skepticism regarding the effectiveness of the intervention. Guy LeBas, chief fixed-income strategist at Janney Montgomery, stated that market interventions historically have a poor track record of success. Conversely, a larger deficit is anticipated to drive up mortgage rates and other borrowing expenses. Lou Crandall, chief economist at Wrightson ICAP, noted that the buyback keeps the market guessing about future operations scheduled through November 4, though the market will likely view $6 billion as the minimum size for the upcoming 30-year buyback on September 24.
Source: cbsnews.com
