Benchmark 10-year Treasury yields reached their highest levels since 2023 on Wednesday after the announcement of an enlarged Treasury buyback of longer-dated bonds disappointed some investors who had wanted more.
Yields retreated from their highs, however, after the Treasury saw very strong demand for a $39 billion sale of 10-year notes.
The U.S. Treasury Department said it will buy up to $6 billion in 10- to 20-year Treasury bonds during its buyback operation on Thursday, triple the size of its last long-dated operation.
"People thought the buyback was going to be larger than $6 billion. It was a disappointment so bond prices sank and yields rose," said Tom di Galoma, managing director at Mischler Financial.
After a selloff that pushed 30-year yields to their highest level since 2007, Treasury Secretary Scott Bessent announced in August that the government would increase buybacks of longer-dated bonds.
Very strong demand for a 10-year note auction then brought yields off these highs, with the debt selling at the highest yield since 2007.
"The auction came at a historical high for 2026 and buyers showed up with very strong demand. The reason they showed up in a very large way is because tomorrow the Treasury is going to buy 10-year to 20-year paper. Investors may have thought it was a risk-free trade," di Galoma said.
Treasury Department sold the 10-year notes at a high yield of 4.834%, more than a basis point below where they traded ahead of the auction. Demand was 2.71 times the amount of debt on offer, the highest since 2019.
The U.S. government already saw solid demand for its $58 billion sale of 3-year notes on Tuesday and will also sell $22 billion in 30-year bonds on Thursday.
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