Treasury doubles bond buybacks to ease 30-year yields near 20-year high

Analysts question whether the buyback expansion can deliver lasting relief

The US Treasury on Wednesday announced it would double its bond buyback operations to at least $4 billion, sending long-term borrowing costs lower after the 30-year Treasury yield hit its highest level in nearly 20 years.

The 30-year yield reached 5.34% on Tuesday — the highest in almost 20 years — before easing to 5.18% following the Treasury’s announcement. The Treasury said the intervention reflected its “desire to provide greater liquidity support” for longer-term bonds.

The buyback expansion will increase operations “by at least double” from $2 billion to $4 billion and will be effective from September 9 to November 4.

The recent surge in long-term yields has been driven by rising oil prices tied to the US-Iran war, with investors concerned about inflation. There are also concerns over government debt and the heavy borrowing by technology firms to develop artificial intelligence, with the timeline and level of returns on investment uncertain.

John Canavan, lead analyst at Oxford Economics, said the Treasury’s decision to increase purchases appeared to be an “attempt to provide relief” on long-term borrowing costs, which had been under “significant pressure from rising oil prices, inflation risks, and heavy supply due to global sovereign and corporate borrowing needs.”

But he noted that, given the size of outstanding Treasury debt, the increase in buybacks was “unlikely to provide meaningful long-term relief.”

Rene Albrecht, senior analyst at DZ Bank in Germany, said the US government feared the “pain of 5% or higher yields” over the long term not just because it raised borrowing costs for the government, but also for the private sector. He pointed to the timing: “It’s only three months until the midterm elections,” Albrecht said. “They have had to grab into the toolkit in order to get a hand on the recent rise in yields.”

Economist Mohamed A. El-Erian said the Trump administration’s move “was about the possibility of a broader strategy to keep control of interest rates” — known as “yield curve control.” While the move can help bring down longer-end yields in the immediate and short term, and thereby help lower mortgage and other borrowing costs, “it risks collateral damage and unintended consequences,” El-Erian said in a social media post.

The long-term borrowing costs feed directly into consumer borrowing. The average rate on 30-year fixed mortgages is 6.67%, according to Freddie Mac. While borrowing costs for homeowners have been rising, they remain lower than in 2023, when such deals averaged 7.7%.

The Federal Reserve on Wednesday released minutes from its last meeting showing that concerns over inflation deepened among policymakers. The minutes said there were “several participants” in favor of increased rates at the meeting. The central bank held its benchmark interest rate in the 3.50%–3.75% range for the fifth consecutive time, with the effective federal funds rate averaging 3.63%.

Many participants also said rate hikes would “likely be necessary if inflation did not decline,” with some suggesting interest rates were not high enough to see price rises fall back to the Fed’s 2% target for inflation.

The Fed is expected to hold its policy rate steady again at its September meeting after recent data showed inflation eased slightly and firms unexpectedly shed jobs in July.