JPMorgan warns Treasury bond buyback may raise yields, not lower them

The US Treasury just doubled down on its bond buyback program. JPMorgan thinks that’s exactly the wrong move. On August 19, the Treasury announced it would at least double the size of its liquidity-support buyback operations for longer-dated nominal coupon securities, raising the maximum per operation from $2B to at least $4B. The new operations, targeting 10- to 30-year bonds, will run from September 9 through November 4. The goal: ease stress in the long end of the yield curve and provide a liquidity backstop during a period of extreme volatility. JPMorgan strategists responded with what amounts to a polite “this won’t work.” The bank warned the buyback blitz may actually push yields higher, the precise opposite of what the Treasury intends. The market’s split-second optimism The initial reaction to the announcement looked promising. Ten-year Treasury yields fell 5.7 basis points to 4.647%, while 30-year yields dropped 9 basis points to 5.196%. Then yields started climbing again. JPMorgan’s strategists pointed to this reversal as evidence that the underlying dynamics in the bond market are simply too powerful for buybacks to overcome. Yields had already surged to multi-decade hig...