The bond market issued a swift rebuke to the Trump administration’s latest attempt on Wednesday to lower borrowing costs, as the 10-year Treasury yield rose to its highest level in roughly three years.
The Treasury Department said on Wednesday morning that it would repurchase up to $6 billion of its own long-dated debt, fulfilling a promise to at least double its regular debt buybacks as it seeks to tame borrowing costs that have drifted steadily higher in recent months.
Treasury yields underpin borrowing costs for companies and consumers, with higher interest rates crimping the affordability of housing, cars and other items bought on credit.
The Treasury’s repurchases effectively reduce the available supply of longer-dated bonds, pushing their prices higher and lowering their yields, with the aim of lowering interest rates more broadly.
The purchases, scheduled to be carried out Thursday afternoon, will increase the size of the Treasury’s buyback operation for debt maturing in 10 to 20 years to $6 billion, from $2 billion last month.
The initial market reaction suggested investors were underwhelmed by the size of the announcement, with analysts at Wells Fargo noting that the rise in Treasury yields “shows that some market participants were likely expecting larger operations.”
There are roughly $30 trillion in outstanding treasuries, with the market trading over $1 trillion every day, according to data from the Securities Industry and Financial Markets Association.
The 10-year Treasury yield rose as much as 0.05 percentage points to its highest level since October 2023 before easing through the afternoon to 4.82 percent. The 20-year yield rose by a similar amount, before falling back to around 5.28 percent, also its highest since late 2023.
The sharp rise in yields after the announcement came before the government sold $39 billion worth of new 10-year notes, with the interest rate on the new debt the highest the government has paid in 20 years. The high yield lured buyers into the market, with the debt sale oversubscribed by 2.7 times. That demand helped ease the earlier rise in yields, though both 10-year and 20-year yields remained higher for the day.
Speaking at Southern Methodist University on Tuesday, Scott Bessent, the Treasury secretary, defended plans to make the bond market move. He argued that markets were misreading the fundamental dynamics of the U.S. economy and noted that, for investors, American bonds had outperformed the bond markets of many other countries.
A former hedge fund manager who once tried to capitalize on fast-moving market anomalies, Mr. Bessent said his job as Treasury secretary is to ensure that markets are not misreading the fundamental dynamics of the economy.
“Now I try to slow things down, to get people to get out of their fever dream and look at the facts,” Mr. Bessent said.
When Mr. Bessent first signaled his plan to increase Treasury repurchases, in mid-August, bond yields fell as intended. But that decline has since reversed and then some, with yields creeping higher on a combination of factors. These include a rising growth outlook tied to artificial intelligence, widening government deficits and expectations that the Federal Reserve may raise interest rates to fight inflation stemming partly from continued turmoil in the Middle East.
It has left the head of the Treasury in a communication challenge with his counterpart at the Federal Reserve. Kevin M. Warsh, the Fed chairman, is trying to convince investors that he is serious about tackling inflation and that if necessary, he will raise the short-dated interest rates the Fed controls. At the same time, Mr. Bessent is trying to talk tough on lowering the longer-dated Treasury yields that underpin many of the interest rates that affect consumers.
Mr. Bessent also defended his recent intervention in currency markets to prop up the Japanese yen. Despite criticism that he is trying to bend markets to his will, Mr. Bessent made the case that he knows more than investors and has the power to dictate how markets will behave.
“Whenever people say, oh well Treasury secretary is taking a risk, it’s my dream,” Mr. Bessent said. “I have asymmetric information. I am the house now.”
Explaining that he knows what the Bank of Japan and Japanese policymakers are going to do, he added: “You can bet against me if you want.”
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