Treasury to buy back up to $6B in longer-term debt as bond yields hit highest level since 2023
10-year note climbed above 4.85% and 20-year bond topped 5.3% following announcement
Main Street Research chief investment officer James Demmert joins ‘Making Money’ to discuss the economic implications of rising global treasury yields and shifting sentiment in the AI trade.
The Treasury Department on Wednesday revealed that it will buy back up as much as $6 billion in longer-dated U.S. debt in an operation this week.
The agency's Bureau of the Fiscal Service announced that it will purchase up to $6 billion in 10-year notes and 20-year bonds in an operation. The securities that will be bought in the operation, which is scheduled to occur from 1:40 p.m. to 2 p.m. ET on Thursday, have maturity dates ranging from February 2037 and August 2046.
The buybacks follow Treasury Secretary Scott Bessent's announcement that Treasury's buyback operations would be at least $4 billion until early November, an increase from the $2 billion that the agency would typically buy back in an operation.
Yields on Treasurys have been elevated in recent years due to stubborn inflation, which has been exacerbated by the Iran war and has caused interest rates to rise further.
BESSENT SAYS TREASURY AUCTIONS WILL CONTINUE AS USUAL DESPITE EXPANDED BUYBACK PROGRAM
Treasury Secretary Scott Bessent announced the larger buybacks last month. (Krisanne Johnson/Bloomberg via Getty Images)
Treasury framed the buyback in its August announcement as intended to "provide greater liquidity support in longer-dated nominal sectors where there is consistent strong sponsorship from market participants, as evidenced by the significant volume of high-quality offers Treasury routinely receives in longer-dated buyback operations."
Yields on both the 10-year note and 20-year bond rose following the announcement.
The yield on the 10-year note rose to the highest level since 2023, climbing to above 4.85% during Wednesday's trading session. The 20-year bond yield also rose above 5.3%.
TREASURY YIELDS HOVER NEAR MULTI-YEAR HIGHS AS ENERGY PRICES AND GOVERNMENT DEBT FUEL BOND SELL-OFF
The Treasury announced a $6 billion buyback of long-dated Treasurys this week. (Michael Nagle/Bloomberg via Getty Images)
Matt Cole, CEO of Strive Asset Management, told FOX Business in an interview that the "market's calling a bluff because these [buybacks] are very small sizes."
Cole said buybacks of $2 billion or $6 billion pale in comparison to both the gross national debt of more than $40 trillion and the level of debt issuance that's expected to continue in the future with annual deficits projected to rise above $2 trillion.
"There's so much debt out there, and there's so much need over the next couple of years to issue more debt out there, that the market is just saying this is not enough," he explained. "I think that's the signal, and ultimately it's not going to be fixed if he raises it from $6 billion to $12 billion."
US NATIONAL DEBT HITS $40 TRILLION MILESTONE FOR FIRST TIME EVER
He noted that most developed countries are facing similar debt problems, while corporate debt issuance is also rising to help finance the artificial intelligence (AI) buildout with yields that are competing with the debt issued by Treasury and foreign governments.
Bessent noted that dynamic in remarks on Tuesday, saying that if markets were concerned about U.S. bonds and default risks, they would be turning to German or Japanese bonds – but that the U.S. bond market has outperformed those.
Fed Chair Kevin Warsh and central bank policymakers will weigh interest rate hikes at their meeting next week. (David Paul Morris/Bloomberg via Getty Images)
Cole added that he thinks Bessent and Federal Reserve Chair Kevin Warsh may be the brightest people to hold their roles but are in a difficult spot given the U.S. government's fiscal position.
"The problem is not them, the problem is a structural debt crisis playing out," he said, adding, "I think that they should, to the maximum degree possible, be trying to foster a high-growth environment."
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"I know Bessent talks about trying to grow his way out of it. I don't think you actually can grow your way out of it. But I do think it's the best thing to be trying to do, and at worst, you at least help the U.S. not slow down too much during… an industrial revolution in this AI data center buildup," Cole said, emphasizing the need for the U.S. to compete and win in AI to drive growth.
"Of all the impossible options, that's the best to try," Cole added. "I just think that there's not a path to be successful here outside of stopping spending, and I just don't think we will do that."