Treasury Doubles Down on Long-Term Debt Buybacks Amid Rising Borrowing Costs
The US Treasury doubled its effort to buy back long-term debt, sparking questions about how this move will impact the Federal Reserve's policy decisions.
Treasury Secretary Scott Bessent announced on Wednesday that the department would double the size of its buyback operations for securities with maturities between 10 and 30 years to $4 billion per operation. This move aims to address rising borrowing costs, which have increased sharply amid competition from artificial intelligence data-center builders and concerns about government deficits.
The US sovereign debt has reached a record $40 trillion, according to the Treasury's announcement. Yields on long-term Treasuries fell after the announcement but resumed their upward push the following day. Bessent stated that the buybacks are intended to signal the Treasury's belief that current yields do not reflect underlying fundamentals.
The move has raised questions about potential conflict between the Treasury and the Fed, with some market participants expressing skepticism about the effectiveness of the new Treasury buyback schedule. Federal Reserve Chairman Kevin Warsh has emphasized the importance of letting markets form an unguided yield curve to provide a market estimate of appropriate policy restraint.