Treasury Boosts Buyback Operations as Fed Eyes Interest Rate Hike

The US Department of the Treasury is increasing the size of liquidity support buyback operations for longer-dated nominal coupon securities. The current maximum size of $2 billion per operation will be at least doubled to $4 billion per operation, effective September 9, 2026. This change reflects the Treasury's desire to provide greater liquidity support in these sectors where there is consistent strong supply and demand.

The Federal Reserve also held a joint meeting with the Board of Governors on July 28-29, 2026. The meeting was influenced by the conflict in the Middle East, which led to higher oil prices. Despite this, inflation compensation moved little in response to the price increase, and nominal Treasury yields rose 25 to 30 basis points.

Market pricing indicated that investors expected no action at the July FOMC meeting as a base case but priced in about a one-in-three chance of an interest rate hike. The median respondent to the Desk survey expected the economic outlook to be weaker than previously thought, with inflation risks skewed to the upside.