US long-term government bonds face selling pressure after Bessent’s intervention

Scott Bessent tried to talk the bond market off the ledge. The bond market looked down and kept climbing. The Treasury secretary announced a significant expansion of liquidity-support buyback operations for long-dated US government bonds on August 19, raising the maximum size of these operations from $2B to $4B for bonds with maturities of 10 to 30 years. The 30-year Treasury yield had just touched 5.34%, its highest level in 19 years, and the move was meant to signal that Washington was paying attention. It worked, briefly. The 30-year yield dropped about 10 basis points to around 5.19% in the immediate aftermath. But that relief proved fleeting, with long-term bonds continuing to face selling pressure as investors concluded that doubling the size of a relatively small operation doesn’t fix the math on a $32 trillion Treasury market. A band-aid on a structural wound The expanded buyback program, set to run from September 9 through November 4, increases both the size and frequency of Treasury purchases of its own outstanding long-dated debt. A $4B buyback operation against a $32 trillion market is roughly equivalent to bailing out a swimming pool with a coffee mug. It can improve c...