The Treasury Department on Wednesday announced plans to buy back up to $6 billion of government debt, triple the normal amount — but it still wasn’t enough to convince investors and long-term rates soared.
Stocks also fell Wednesday as Brent crude oil futures surged above $100 a barrel for the first time since July, reheating concerns about inflation that could spur the Federal Reserve to hike interest rates.
Treasury Secretary Scott Bessent — who has also been involved in unusual efforts to prop up the Japanese yen and Argentine peso — on Tuesday dared traders to bet against him, saying, “I have asymmetric information. I am the house now.”
His ramp-up in debt buybacks has largely been seen as an attempt to cap soaring Treasury yields, which have hit levels not seen since the 2008 market crash.
The rapid run-up in yields is threatening to hit consumers hard, raising borrowing costs on mortgages and auto loans and potentially hammering the stock market as Americans already face affordability issues.
Mark White, wealth advisor at Mark White Wealth Advisors, told The Post that Wednesday’s market reaction shows investors are doubtful the buybacks will meaningfully lower yields.
“While a $6 billion buyback can improve liquidity and provide some support at the margin, it’s simply not large enough to meaningfully change the fundamental forces driving long-term yields,” White said Wednesday.
“Inflation concerns, rising deficits and the supply of Treasury debt are ultimately going to have a much greater influence on yields than a single buyback operation,” he said.
On Aug. 19, Bessent said the department would at least double its buybacks, which implies just a $4 billion level, in an effort to keep bond markets functioning.
The Treasury instead said Wednesday it would triple the operation, and it also said future operations will reach at least $4 billion.
But markets were unimpressed, with Treasury yields rising as much as 5 basis points before easing on Wednesday.
The US 10-year Treasury yield hit 4.833% by approximately 1:30 p.m. ET. The 20-year Treasury yield rose to 5.29% and the 30-year yield was most recently at 5.289%, after earlier in the day breaking past the closely watched 5.3% level.
The Dow Jones Industrial Average fell 325 points, or 0.6%, by approximately 2:30 p.m. ET, while the S&P 500 and Nasdaq slumped 0.4% and 0.6%, respectively.
Analysts at RBC Capital Markets had said Tuesday that a buyback operation of $5 billion to $6 billion was their base case, so the department’s announcement was not much of a surprise to markets. A $4 billion operation would have been even more disappointing.
Quadrupling the buybacks to $8 billion or more likely wouldn’t have satisfied investors, either, because it would have been a major shift from Bessent’s announcement just two weeks ago – suggesting the plan hadn’t been well thought out.
The buybacks will take place Thursday in a 20-minute span ending at 2 p.m. ET, according to the Treasury Department.
Global bond markets have been selling off as investors fear a prolonged Middle East conflict could keep energy prices elevated and drive inflation higher.
Treasury yields are the annual interest rates that investors are paid for holding government debt, and they are inversely linked to prices. As traders dump government bonds, yields move higher.
In the meantime, traders have grown increasingly concerned that the Fed could hike interest rates at its meeting next week, which would raise short-term borrowing costs – impacting the rates on credit cards and home-equity lines of credit.
But Bessent’s buyback plan has faced some backlash, with critics questioning whether the operation will have a noticeable impact on such a massive market.
Billionaire investor Stanley Druckenmiller emerged as a prominent critic, penning a scathing Wall Street Journal op-ed titled “Let the Bond Speak.”
He argued the Treasury Department should “do the only thing that durably lowers long-term yields: address the primary deficit. Reform entitlements gradually and honestly, through means testing, indexing changes, eligibility adjustments phased in over decades – so that the burden is shared across generations instead of dumped on the youngest.”
The article caused a stir online since Druckenmiller has been seen as a former mentor to Bessent in his early hedge fund days. Druckenmiller also made headlines after he admitted he used AI to help write the opinion piece.
