The US Treasury said it will at least double its purchases of long-term government debt, and longer-dated yields pulled back Wednesday after touching multi-decade highs a day earlier. The move targets securities maturing in 10 to 30 years as officials try to steady a bond market rattled by inflation fears and a growing fiscal deficit.
Yields retreat from multi-decade highs
Longer-term Treasury yields pulled back Wednesday: the 30-year Treasury yield shed more than 8 basis points to 5.202%, while the 10-year note lost more than 4 basis points to trade at 4.66%. The pullback reverses course from Tuesday, when the 30-year yield hit a fresh high above 5.33%, its highest level since June 2007. The 2-year yield, more sensitive to near-term policy, added 1 basis point to 4.186%.
The bond market abroad has faced similar pressure. Japan's 10-year bond yield reached its highest level in three decades this week, while German 30-year bund yields hit their highest point since 2011 and French 30-year yields touched levels last seen in 2008.
Treasury doubles its buyback operation
Treasury Department officials said they will at least double their purchases of long-term government debt, lifting the buyback size for securities maturing in 10 to 20 years and 20 to 30 years from $2 billion to at least $4 billion. The expanded operation begins on September 9 and is meant to shore up liquidity in older, less actively traded Treasuries.
The announcement rattled other markets too: an index of the dollar against six peers slid 0.7% on Wednesday. Demand for new debt, however, stayed only middling — a $16 billion sale of 20-year bonds drew a bid-to-cover ratio of 2.53, below this year's average of 2.66.
Deficit and inflation pressures persist
This buyback comes as investors weigh a widening US fiscal deficit, which jumped to $432.3 billion in July, its highest monthly total since March 2021, pushing the year-to-date shortfall to nearly $1.8 trillion. Interest payments on the nearly $40 trillion national debt have cost the federal government about $1.2 trillion this year. According to Wells Fargo Investment Institute analyst Tony Miano, the drivers behind rising yields remain in place, including inflation uncertainty, monetary policy, and the debt trajectory.
Wall Street expects the Treasury to offset the larger buybacks by issuing more short-term bills, shifting borrowing toward debt maturing in one month to one year. Yields on three- and six-month bills rose slightly on Wednesday, reflecting that expectation.
Sources: CNBC, Financial Times
Trading involves risk.
Risk Disclaimer
