The bond market has been sending a warning signal this summer. On Wednesday, the Treasury Department responded.
After a bond market selloff drove long-term U.S. bond yields to their highest level in years, the Treasury Department announced today that it is at least doubling its planned buybacks of longer-term government bonds, from a maximum of $2 billion to at least $4 billion. The change will start on September 9 and run through November 4, the day after the midterm elections.
“This administration needs a win and maybe that comes in the form of artificially trying to keep long Treasury rates contained,” Jack McIntyre, a portfolio manager at Brandywine Global Investment Management, told Bloomberg. “They have to try something. Sentiment around the long-end globally is about as bearish as I have seen in a very long time.”
The surprise announcement came just weeks after the Treasury Department had issued its quarterly “refunding” announcement, detailing its near-term debt-management plans. That suggests that the recent bond selloff really did set off some alarm bells at the Treasury, which said in its announcement that its move is meant “to provide greater liquidity support” at the long end of the bond market.
The announcement had the desired immediate effect of lowering longer-term yields, which had been rising because of concerns about persistent inflation and higher oil prices due to the war with Iran as well as worries about the U.S. budget deficit and rising debt. The yield on the benchmark 10-year Treasury, which had been just under 4% at the end of February, topped 4.7% earlier this week, a sizable move for the bond market. And the 30-year Treasury yield this week reached its highest level since June 2007, before the financial crisis of 2008 sent interest rates plunging toward zero. Both fell back on Wednesday following the Treasury Department’s announcement.
Higher yields make it more expensive for the government to borrow at a time when the national debt just crossed $40 trillion and the annual budget deficit is expected to top $2 trillion. Interest on the federal debt cost the government more than $1.2 trillion for fiscal year 2025 and has already cost nearly as much with more than a month remaining in fiscal year 2026. The higher yields also act as a drag on the economy, raising the cost of borrowing to buy a house, for example, or grow a business like, say, a new AI data center. So-called “hyperscalers” — the tech giants that are building massive data centers for various uses — have been issuing new debt at a rapid clip, competing with government bond issuance and also making them highly sensitive to higher rates.
