As with currency operations, you must go big or go home. Halfway measures only incentivize the other side.
From Bloomberg, August 19:
Bessent Deploys Debt Buybacks in Sign of Concern Over Yield Rise
US Treasury Secretary Scott Bessent made a fresh attempt to rein-in long-term borrowing costs from multi-year highs, sending Treasury yields and the dollar down.
Just two weeks after releasing its planned schedule for buybacks this quarter, the Treasury Department on Wednesday said it’s “increasing, by at least double, the size of liquidity support buyback operations” for securities dated from the 10-year to the 30-year sector....
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....“This administration needs a win, and maybe that comes in the form of artificially trying to keep long Treasury rates contained,” said Jack McIntyre, a portfolio manager at Brandywine Global Investment Management. “They have to try something. Sentiment around the long-end globally is about as bearish as I have seen in a very long time.”...
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....“The buyback is a clear signal the Treasury is watching markets and is concerned about long-end yields. That sort of increase in flow cannot in and of itself turn the tide of long-end selling, though the signal may be sufficient to prompt further short-covering.” — Cameron Crise, macro strategist. For more analysis,.....
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...“If yields go too far, Treasury will try and fight it — and now we know where some pain points are,” said John Briggs, head of US rates strategy at Natixis North America....
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....“Operation twist is here,” Deutsche Bank AG’s George Saravelos, global head of FX research, wrote in a note. “Treasury would have to issue more treasury bills to finance the removal of duration from the market.” They added that it’s effectively a “soft-form financial repression.”...
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Also at Bloomberg, August 19:
‘The Treasury Is Watching’: Bessent’s Buybacks Jolt Bonds
....“In our view, this action is to control long-end yields and was not for market functioning purposes,” said the Citi team led by Jason Williams. “Today’s action, combined with cooling inflation, sets the stage for a strong rally in the months ahead.”....
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Padhraic Garvey, ING Groep NV’s regional head of research in New York:
Officially, the buybacks in long-dated maturities are being increased to enhance liquidity. But this could have been done two weeks ago as a part of the regular quarterly announcement. The fact that it’s being done now suggests an ulterior motive – to calm nerves with long yields under meaningful upward pressure. It will dampen but not abort the pressure
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Barclays Plc strategists led by Anshul Pradhan in a note to clients titled ‘The Treasury is Watching’:
We see today’s announcement of the increased buyback program at the long end as effectively reducing long-end supply. Such announcements are typically made at the refunding meeting, not in between, suggesting that the recent rise in yields did catch the Treasury’s attention... Signaling is important. Investors now know that Treasury is prepared to adjust around the edges if long-end yields rise... Should the rally reverse, the Treasury can always increase long-end buybacks. The announcement says “at least $4 billion per operation”
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Will Hoffman and Ira Jersey, Bloomberg Intelligence strategists:
The timing of the announcement was surprising and likely strategic. Choosing to announce this change outside of the quarterly refunding cycle, in a quiet summer week with no meaningful economic data and likely thin summer liquidity, was meant to boost the magnitude of market reaction from the announcement. It remains to be seen what the addition of “at least $4 billion” means in practice, but this marks the first major issuance lever this administration has pulled, and opens the door to future creativity.
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Guy Miller, chief strategist at Zurich Insurance:
This was quite a good way of doing it. It shows intent. It shows a consistency in wanting to bring the long end down. It also shows a continuation of what we’ve been doing in terms of twisting towards more shorter dated issuance... You’ve shown your pain point, and I suspect the market will challenge that again. To be fair to Bessent and the administration, they’ve got significant firepower. They can intervene again and they can push back. But ultimately, it’s going to be policy that dictates where you’ll go in the long term. We’re talking about the symptoms again, not fixing the cause. And this only works for so long. It can be quite a potent intervention when you’ve got the Treasury saying that they’re very much committed to doing this. But ultimately, unless you tackle profligate policy, that’s not sustainable indefinitely.
....MUCH MORE
