Treasury's smaller-than-expected buybacks fuel debate over aims
TLT•The US Treasury has accepted around half the bonds offered in recent buybacks and fallen short of its repurchase cap. The cap rose to $6 billion from $2 billion last month.
1. Buybacks fall short of caps
The Treasury has purchased fewer longer-dated bonds than expected, despite recently expanding the buyback program. In its most recent operations, it accepted around half the bonds offered and did not reach its stated cap; submissions at the latest operation totaled $10.47 billion, compared with roughly $20 billion to $30 billion at several earlier long-end buybacks.
2. Liquidity and debt management
Treasury Secretary Scott Bessent has described the purchases as a technical measure to help investors trade older, less liquid government bonds. Some market participants say the program may also allow the government to repurchase low-coupon COVID-era bonds at prices well below face value, though the Treasury would need to finance the purchases, potentially by issuing short-term bills.
3. Debate over the program
Investors have debated the program’s aims since the Treasury announced an out-of-cycle expansion on August 19. Long-end Treasury yields have continued to rise, while ING’s Padhraic Garvey said a narrowing swap spread indicates the operation is working according to Bessent’s aims. The Treasury plans to buy up to another $6 billion in 10-to-20-year debt on Thursday.
