US Treasury to Expand Buybacks of Longer-Dated Bonds Amid Market Stress
US Treasury doubles buyback sizes for longer-dated bonds to at least $4 billion per operation, effective September 9.
The U.S. Treasury Department announced on Wednesday that it will double the size of its liquidity support buyback operations for longer-dated nominal coupon securities, raising the amount from $2 billion to at least $4 billion per operation. The change applies to the 10-year to 20-year sector and the 20-year to 30-year sector, and will be in effect from September 9 through November 4.
The decision comes a day after a significant bond market selloff pushed the 30-year Treasury yield to its highest level since 2007. The selloff was driven by concerns over a potential escalation in the U.S.-Israeli conflict with Iran, as well as growing worries about the deteriorating U.S. fiscal outlook, with total public debt outstanding approaching $40 trillion.
Yields had risen despite a previously scheduled $2 billion buyback of 20-year and 30-year bonds on Tuesday. On Wednesday, the 30-year yield eased from Tuesday's 19-year high of 5.34%, and the Treasury's announcement pushed it down further to as low as 5.187%, marking the largest daily drop in yields since late June.
In a statement, the Treasury said the increase reflects its desire to provide greater liquidity support in longer-dated nominal sectors where there is consistent strong sponsorship from market participants. The agency noted the significant volume of high-quality offers it routinely receives in longer-dated buyback operations.
The Treasury has conducted scheduled purchases of older-vintage securities before their maturity dates for several years, providing liquidity support for these off-the-run bills, notes, and bonds. Tuesday's buyback included purchases of $1 billion of a bond maturing in 2048 and another $1 billion of two bonds maturing in 2051. Investors had offered nearly $20 billion of bonds for repurchase.
The next scheduled buyback for 20- and 30-year bonds is set for September 24, with a 10- to 20-year buyback scheduled for September 10. The Treasury said it will publish an updated tentative buyback schedule at a later date.