Key facts
- The US Treasury announced a plan to buy back $6 billion in government bonds.
- The move was intended to lower borrowing costs and stabilize the bond market.
- The 10-year Treasury yield rose to a three-year high following the announcement.
- The 30-year Treasury yield reached approximately 5.2%, its highest point since the 2008 financial crisis.
- Analysts expressed doubt that the buyback would effectively control yields or reduce borrowing costs.
- Rising US government debt, which surpassed $40 trillion in August, is seen as a primary driver of increasing bond yields.
The US Treasury's attempt to lower borrowing costs through a $6 billion government bond buyback plan was met with skepticism by the bond market, leading to a rise in Treasury yields. The announcement by Treasury Secretary Scott Bessent on Wednesday aimed to alleviate pressure on interest rates, but investors remained unimpressed.
The yield on 10-year Treasury bonds climbed to its highest level in three years, while the 30-year Treasury yield reached approximately 5.2%, a level not seen since the 2008 financial crisis. Analysts, including Mike O'Rourke of JonesTrading, noted that the buyback is a peripheral measure and does not address the fundamental issue of rising US government debt, which surpassed $40 trillion in August.
Economist Brett House of Columbia Business School stated that the buyback does not solve the problem of financing the US deficit, suggesting that without the Federal Reserve printing money to buy bonds, the government will continue to issue more debt. Other market strategists, like Guy LeBas of Janney Montgomery, pointed to a history of market interventions failing to produce desired results.
Lou Crandall, chief economist at Wrightson ICAP, suggested that the operation merely prolongs uncertainty, with future buyback sizes remaining a subject of speculation. The rising yields could translate to higher interest rates for consumers on loans such as mortgages and student debt.
Separately, Donald Trump commented on rising oil prices, predicting they would fall after the midterm elections, and urged the Federal Reserve to lower interest rates. Fed Chair Kevin Warsh, in a recent speech, emphasized the Fed's commitment to stable prices but did not signal an immediate rate hike.