In a significant move on Tuesday afternoon, the U.S. Treasury executed its largest-ever bond buyback operation, purchasing $10 billion worth of Treasury securities. This unprecedented action follows Treasury Secretary Steve Bessent’s earlier hints in April about potentially expanding buyback operations if necessary.
During an April 14 Bloomberg TV appearance, when bond yields were climbing amid concerns over potential Chinese or Japanese selling and a $2 trillion basis trade unwind, Bessent had revealed his regular weekly meetings with Federal Reserve Chairman Powell and suggested the Treasury could increase buybacks if the Fed remained inactive.
Now, with the Federal Reserve maintaining its current stance despite core PCE dropping to levels not seen since the COVID-19 crisis, and the 30-year Treasury yield approaching 5%, Bessent appears to be following through on his earlier statements. The Treasury’s latest operation, while consistent with its weekly buyback schedule initiated in April 2024, marked a substantial increase in scale.
The buyback targeted Treasury securities maturing between July 15, 2025, and May 31, 2027, representing relatively short-duration bonds. Historical data shows a clear upward trajectory in the size of these operations over the past year. The Treasury is also expanding its focus to longer-dated securities, with another buyback operation scheduled for tomorrow targeting bonds maturing between 2036 and 2045, with a maximum redemption amount of $2 billion – double the size of the previous similar operation on May 6.
This aggressive scaling up of buyback operations mirrors similar actions taken in mid-to-late April when Treasury markets experienced significant pressure. The current situation presents an interesting dynamic between the Treasury and the Federal Reserve, with the former potentially stepping in to stabilize bond markets while the latter remains inactive.
The Federal Reserve’s current position appears politically nuanced, having implemented rate cuts two months before the election but now maintaining a hands-off approach despite favorable inflation data. This has created a vacuum that the Treasury seems increasingly willing to fill through expanded buyback operations.
The Treasury’s strategy appears to be evolving from the “Activist Treasury Issuance” approach that characterized much of 2023-2024 to what could be termed “Activist Treasury Buyback” under Bessent’s leadership. This shift may continue until the Federal Reserve adjusts its stance or market conditions change significantly.
This development represents a notable shift in Treasury market dynamics, with the Treasury Department taking a more active role in market stabilization traditionally associated with Federal Reserve operations. The size and scope of these buybacks suggest a determined effort to manage Treasury yields and market stability, particularly given the Fed’s current reluctance to intervene directly.
The pattern of increasing buyback sizes, combined with the expansion into longer-duration securities, indicates a comprehensive strategy to influence various segments of the Treasury market. Tomorrow’s scheduled operation targeting longer-dated securities particularly demonstrates the Treasury’s willingness to extend its influence across the yield curve.
These actions raise questions about the evolving relationship between Treasury and Federal Reserve policy, especially in periods when traditional monetary policy tools remain unused despite potentially favorable economic conditions for their deployment.