US Treasury's Bond Buyback Plan Falters Amid Global Uncertainty

The US Treasury has been buying back its own long-term bonds to lower yields and borrowing costs. Last month, it announced that it would double the size of its buyback program, aiming to reduce 30-year bond yields from their highest level in over a decade.

However, when the actual size of the larger buyback was announced, 30-year bond yields climbed back up to 5.29%. This is because investors had expected the Treasury to buy back at least $10 billion worth of long-dated bonds, but the actual size came in at just $6 billion.

While the Treasury's actions may seem like a straightforward way to lower yields, experts argue that it's not as effective as quantitative easing (QE), which allows the Federal Reserve to create new money and buy bonds with it. The Treasury can't print new money, so every dollar used for a buyback has to come from elsewhere.

The size of the larger buyback is also relatively small compared to the entire $5.5 trillion US Treasury bond market. It's equivalent to spending just $10 on something worth $10,000, and may not be enough to counteract the influence of other market factors such as inflation fears and oil prices.

According to experts, there are three main ways to bring down yields: addressing supply shortages driving up inflation, implementing QE, or changing investor expectations through economic growth. The most realistic hope is that the US-Iran war ends, easing supply disruptions and pushing yields lower.