By COMFORT OGBONNA
The U.S. Treasury Department will double the size of its liquidity-support buyback operations for longer-dated government securities, increasing the amount purchased in each operation from $2 billion to at least $4 billion.
The change will apply to Treasury securities in the 10-year to 20-year and 20-year to 30-year maturity sectors and will take effect Sept. 9 through Nov. 4, according to the department.
The decision comes after a sharp selloff in government bonds pushed long-term yields higher and raised concerns about liquidity in some of the Treasury market’s longer-dated securities.
The yield on the 30-year Treasury note reached 5.34% on Tuesday, its highest level since 2007, as investors reacted to growing concerns about the U.S. fiscal outlook and heightened geopolitical risks.
Treasury yields move inversely to bond prices, meaning that rising yields generally reflect falling prices as investors demand greater returns to hold government debt.
The increase in buyback operations was announced after a previously scheduled $2 billion Treasury purchase of 20-year and 30-year securities failed to prevent yields from rising sharply on Tuesday.
By Wednesday, the 30-year yield had eased from its Tuesday peak. Following the Treasury announcement, it fell further to about 5.187%, marking its largest one-day decline since late June.
Treasury officials said the larger operations are intended to provide additional liquidity in longer-term areas of the government bond market where investor participation remains strong.
The Treasury regularly conducts buybacks of older Treasury securities, often referred to as off-the-run securities, before their maturity dates. These transactions are designed to improve market liquidity and give investors an additional avenue for selling older securities.
The program does not represent a broad reduction in the government’s outstanding debt. Instead, Treasury purchases selected existing securities from investors and can use the transactions to help improve the functioning of the market.
The latest increase reflects strong demand from investors to sell longer-dated Treasury securities back to the government. During Tuesday’s buyback operation, the Treasury purchased $1 billion of a bond maturing in 2048 and another $1 billion of two bonds maturing in 2051.
Investors offered nearly $20 billion of securities for the Treasury to repurchase, far exceeding the $2 billion amount available in the operation.
The strong level of offers highlights the depth of demand for the buyback program and the amount of older Treasury debt investors are willing to sell.
The move also comes as markets remain focused on the U.S. government’s fiscal position. Total federal debt outstanding is approaching $40 trillion, increasing attention on the amount of borrowing needed to finance government operations and refinance existing obligations.
Long-term Treasury yields have also been sensitive to expectations for inflation, interest rates, government borrowing and geopolitical developments. Higher yields can increase borrowing costs across the economy, potentially affecting mortgages, corporate debt and other forms of financing.
The Treasury’s decision to expand the buybacks could help improve trading conditions in longer-dated securities by providing greater liquidity during periods of market stress.
The next scheduled buyback involving 20-year and 30-year securities is set for Sept. 24, while the next operation involving 10-year to 20-year securities is scheduled for Sept. 10.
The Treasury is expected to release an updated tentative buyback schedule at a later date.
The expanded operations underscore the department’s effort to support orderly functioning of the world’s largest government bond market at a time when investors are closely watching U.S. borrowing needs, fiscal conditions and the direction of long-term interest rates.
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