Long-dated Treasuries rally as Treasury doubles buyback cap to $4 billion

The US Treasury Department just pulled a move that bond traders have been quietly hoping for. Starting September 9, the government will double the maximum size of its liquidity-support buyback operations for long-dated bonds, bumping the cap from $2 billion to at least $4 billion per operation. The market’s response was swift and decisive. Thirty-year Treasury yields dropped roughly 9 basis points on the announcement, while the Dow Jones climbed about 230 points. What the Treasury is actually doing The expanded buyback program targets nominal coupon securities maturing between 10 and 30 years. The increased operations will run from September 9 through November 4, giving the Treasury a roughly two-month window to inject additional liquidity into the long end of the market. Treasury buybacks work like a reverse auction. The government purchases its own previously issued bonds from the open market, effectively removing supply and supporting prices. When bond prices go up, yields go down, since the two move in opposite directions. The Treasury cited strong market participation in its earlier buyback operations as justification for scaling up. In practical terms, that means dealers were...