The US Treasury’s bond buyback programme has failed to deliver lasting relief, with long-term borrowing costs climbing back towards their recent highs just days after the government stepped in to try to calm bond markets. The US Treasury bond buyback, announced earlier this week, sent yields briefly lower before traders pushed them back up, raising fresh questions about Washington’s ability to control its own borrowing costs.
Bond yields, the interest rate the US government and corporations effectively pay when they borrow, matter well beyond financial markets. They feed directly into mortgage rates, car loans, and the cost of credit for businesses of all sizes, so when they rise, the impact is eventually felt in household budgets across America and, through the dollar’s role in global finance, far beyond.
What the US Treasury bond buyback was designed to do
The Treasury Department said it would buy back existing government debt, stepping in as a buyer to boost demand for bonds and put downward pressure on yields. By showing it was prepared to intervene when rates neared current levels, Treasury Secretary Scott Bessent aimed to reassure markets and arrest the rise in borrowing costs.
According to Investing.com, the initial structure of the programme allowed for weekly liquidity-support purchases of up to $2 billion in nominal coupon securities and $500 million in Treasury Inflation-Protected Securities (TIPS). Under the accelerated version of the buyback, CNBC reported that the Treasury is targeting the 10–to–20-year and 20–to–30-year portions of the market, segments that have experienced what analysts described as a buyers’ strike since late June.
The strategy produced a visible, if short-lived, result. Yields on 30-year bonds fell to around 5.18% following the announcement, down from an almost two-decade high of 5.34%. By Friday, however, they had climbed back to around 5.27%, erasing much of that gain.
Why the relief from the US Treasury bond buyback did not last
John Canavan, lead analyst at Oxford Economics, said the response to the government’s intervention was ‘unsurprisingly short-lived’. He pointed to what he called the ‘daunting’ amounts of global borrowing by governments and corporations, alongside rising oil prices, as the forces pulling yields back up.
Economists at Capital Economics were equally measured. ‘As Bessent himself confirmed, the move is mainly a signalling mechanism, with the Treasury showing it is prepared to step in with yields near current levels,’ they said. ‘It is not necessarily an effective one, however, as much of the initial fall in 30-year yields has now been reversed.’
Bessent, for his part, sought to place the blame for the underlying situation elsewhere. Speaking to US media on Thursday, he said: ‘We did not get here in a day, we were left with a mess,’ pointing at the record of the Biden administration.
The backdrop to the market turbulence is a US national debt that has more than doubled in a decade to reach $40 trillion. Figures released on Wednesday confirmed that milestone, reflecting years of heavy spending under successive administrations and growing interest payments that have added to the total. In 2016, the national debt stood at just under $20 trillion.
Several forces are keeping upward pressure on yields. Higher oil prices, linked to disruption from the US-Iran war, have stoked inflation fears. Large sums being borrowed by technology companies to fund artificial intelligence development (at uncertain returns) have added to the global demand for credit. And in the US, tax revenues continue to be outstripped by public spending.
In currency markets, the dollar weakened in response to the bond market volatility. As the world’s primary reserve currency, a falling dollar makes US exports cheaper for foreign buyers but pushes up the cost of imports for Americans. Gold climbed to a more than three-month high on Friday as investors sought safer ground.
The BBC said it had contacted the Treasury Department for comment on the market reaction, but no response had been published at the time of reporting. With the accelerated buyback now targeting the longer end of the market, where the buyers’ strike has been most acute, the coming weeks will show whether larger-scale intervention can achieve what the initial programme could not.
