The Treasury Department announced Wednesday that it will buy back up to $6 billion in government bonds in an operation aimed at keeping bond markets functioning.
The long-awaited announcement follows Treasury Secretary Scott Bessent’s Aug. 19 statement that the department would triple the amount of its regular stock repurchase operations and at least double the department’s regular amount of outstanding securities.
The Treasury Department also said that the amount it will be managing will be at least $4 billion.
While the operation is ostensibly aimed at maintaining liquidity in the government bond market (in this case, 10-year and 20-year bonds), the unusual move is also seen as an attempt to stem U.S. bond yields, which are at their highest since before the 2008 global financial crisis.
However, the market reaction was negative. U.S. Treasury yields rose further, but long-term bonds were volatile, rising by up to 5 basis points each before easing.
The benchmark 10-year bond reached 4.841% at around 11:30 a.m. ET. The 20-year bond rose to 5.314%, and the 30-year bond rose 5 basis points, breaking above the 5.3% level seen as important, with the latest yield at 5.307%. 1 basis point equals 0.01%.
“It’s not Hank Paulson’s bazooka,” said Mark Spindell, chief investment officer at Potomac River Capital, a bond fund manager, referring to the former Treasury secretary’s actions during the financial crisis. “And in that crisis, an act of Congress was necessary.”
Wednesday’s announcement prompted speculation that the buyback level could be many times higher than originally announced, with Treasury saying the amount would be “at least” double the usual $2 billion operation.
“At the end of the day, the Treasury is issuing a huge amount of securities and trying to control price levels at the end of the curve using what is not necessarily a large-scale operation in the grand scheme of things,” said Robert Tipp, chief investment strategist and head of global fixed income at PGIM Credit.
He added: “When they announced and said we were going to buy at least $4 billion, I think the market expectations were around 6 to 10. And they hit the lower end of the market expectations.” “As a result, we are seeing a negative reaction here in the market with a decline at the tail end of the curve.”
The actual buyback will take place in a 20-minute operation that ends Thursday at 2:00 pm ET.
The rise in U.S. Treasury yields is due to a combination of factors: a surge in government debt that recently exceeded $40 trillion, rising inflation concerns due to tariffs and the Iran war, and a corresponding resurgence in energy prices, with oil prices topping $100 a barrel on Wednesday.
At the same time, the long end of the Treasury curve is a less active part of what is considered the deepest and most liquid market in the world.
This year’s government bond issuance has increased by 11.8% from 2025, and the $31.8 trillion public debt has increased by 8.2%.
“The share buybacks announced by the Treasury Department were less than expected (or worried, depending on your point of view),” Mizuho economist Alex Perre wrote. “The risk is that the Treasury accelerates this somehow, given the market reaction. But the pressure to go against standard operating procedure will subside somewhat on the other side of the midterm elections.”
The acceleration of share buybacks has faced critics, with some questioning how the amount would affect such a large market, and the move also prevents the Treasury from moving forward with the process in a predictable manner.
One prominent critic was Stanley Druckenmiller, head of the Duquesne Family Office and a former mentor to Mr. Bessent.
“Once the market believes the Treasury is protecting prices, every rise in yields is a test of official resolve, and operations will need to expand to survive the test,” Druckenmiller wrote in a Wall Street Journal op-ed.
He added: “Governments that protect prices against fundamentals always lose. The only variable is how much they spend before making concessions.”
The Treasury’s maneuver includes a parallel move to support the Japanese yen, as Federal Reserve Chairman Kevin Warsh preaches reducing involvement in financial markets. The Fed is expected to make a decision on interest rates within a week, and traders are pricing in a rate hike.
“It’s not the words that matter, it’s the actions that matter, and in this case, actions mean changing the direction of fiscal policy and interest rates,” said Anil Kashyap, an economist at the University of Chicago.
—CNBC’s Steve Liesman contributed.
Correction: Anil Kashyap is an economist at the University of Chicago. A previous version misspelled his name.
