The U.S. Treasury plans to extend its buyback program, with 11 operations between Sept. 10 to Nov. 12 that will purchase an additional $26 billion of outstanding debt, predominantly longer-maturity notes and bonds.
Those purchases would bring the total of buyback operations to 57 this year, a substantial increase over the 41 last year. There were only 17 total operations in the 22 years from 2002 to 2023.
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The U.S. Treasury will issue $58 billion in three-year notes on Tuesday, $39 billion in a 10-year note reopening on Tuesday and $22 billion in a 30-year bond reopening on Thursday in addition to a large number of bill issuances.
Buybacks have generally been used to increase liquidity in the fixed income market by removing off-the-run notes (2 to 10 years’ maturity) and bonds (20 to 30 years) that are just sitting there.
The operations in 2000-01 and then in 2024-25 stick out like a sore thumb, both occurring during periods of rapid fiscal expansion.
In this latest period, funding the government’s debt has become more costly than during the era of extremely low interest rates, and concern over the government’s unfunded fiscal expansion has threatened the long end of the yield curve.
That concern suggests that the Treasury is using all of its tools to suppress interest rates along specific areas of the curve, by buying longer-maturity bonds that will pressure long-term interest rates lower and issuing short-term bills with lower interest rates.
But at some point, the money markets will no longer be able to absorb all the short-term debt, and the government will need to diversify its debt issuance with longer-term notes and bonds.
To say the least, with inflation pushing higher—which all will observe when inflation data for August is released this month—these buybacks are part of an evolving narrative in which the short end of the curve is easing while pressure out along the far end may increase especially as these buyback operations ease later this year.
