US Treasury doubles long-dated bond buybacks: Why are yields rising again?

The US 10-year Treasury yield steadied on Thursday, climbing to 4.672% by the time of publication following a significant decline to 4.635% on Wednesday. This shift occurred in the wake of an unexpected announcement from the US Department of the Treasury. The Treasury revealed on Wednesday that it would double its size of liquidity-support buyback operations for bonds with maturities ranging from 10 to 30 years, increasing the amount from $2 billion to a minimum of $4 billion per operation.

The announcement came at a critical time, interrupting a recent surge in yields that had pushed the 10-year yield to near 4.75% on Tuesday and the 30-year yield toward its highest levels since 2007. ING suggested the timing of the announcement was particularly significant, as the Treasury had only released its quarterly buyback schedule two weeks prior.

This move could signal to investors that authorities are vigilant about the rise in long-term yields and are prepared to intervene to alleviate market tensions. The potential impact on yields over the long term, however, could remain limited. The $4 billion invested in buybacks is relatively modest compared to overall bond issuance and the total amount of US debt outstanding.

Analysts caution that significantly larger purchases would be necessary to substantially affect yields. The stabilization in yields coincides with the US Dollar (USD) under pressure despite hawkish Federal Reserve (Fed) Minutes released on Wednesday. The US Dollar Index (DXY) fell another 0.10% on Thursday to 98.70, extending Wednesday's decline.

Lower US yields are putting downward pressure on the Greenback, though persistent fiscal and inflation concerns may limit the Treasury's ability to keep long-term rates contained.