Treasury Buyback Boosts Stocks, Clouds Fed Rate Hike Hopes

The US Treasury Department has announced that it will increase its buybacks of long-dated government debt, aiming to improve liquidity in the market. This move comes as a relief to investors who had been demanding more support from the bond market. The Treasury Department plans to buy back at least $4 billion worth of debt per operation, doubling the previous amount of $2 billion.

The increased buybacks will begin on September 9 and continue through November 4, with the goal of purchasing up to $83 billion in debt over this period. As a result, the 30-year Treasury yield has fallen from around 5.34% to approximately 5.20%, while the 10-year yield dropped to around 4.65%. The stock market also reacted positively, as the easing of pressure on valuations, mortgages, and corporate financing helped stocks rally.

However, this development creates a challenge for Federal Reserve Chair Kevin Warsh, who had been relying on higher long-term yields to tighten financial conditions without another Fed rate hike. The increased buybacks by the Treasury Department could make it more difficult for Warsh to achieve his goal of keeping interest rates low.