When Treasury Secretary Scott Bessent said last week that Washington would at least double its purchases of long-term US bonds to a minimum of US$4 billion per operation, aiming to assuage investor concerns about the government’s soaring borrowing costs, the move took markets by surprise.
However, Treasury buybacks are a standing programme launched in May 2024 under which the US Treasury repurchases its own previously issued Treasury bonds from primary dealers on a regular schedule.
The scale is small relative to total Treasury outstanding debt, well under 1%, so the effect is more signal than substance in any single operation.
Yet the timing of the announcement after a major sell-off highlights the Trump administration’s sensitivity to the rise in yields, with 30-year bond yields reaching their highest level since 2007.
The unexpected move also underlined a fundamental question: what are the sustainable paths to lower borrowing costs that flow through to households, businesses, and government debt-servicing costs, and are any of them possible in the near future?
WHY IS THE US TREASURY INCREASING ITS BUYBACKS?
US Treasury yields have continued to rise this year, particularly at the long end of the curve. Prior to the announcement, the 30-year Treasury yield climbed to 5.34%, its highest level in 19 years.
The rise prompted the Treasury to announce an increase in the size of its buyback operations for bonds with maturities of 10-20 years and 20-30 years, doubling the amount from $2 billion to $4 billion per operation.
The increased buyback size applies to operations conducted between Sept 9 and Nov 4, 2026, as part of efforts to support liquidity and maintain stability in the Treasury market.
According to Kasikorn Research Center (K-Research), Treasury buybacks are a regular and ongoing market operation rather than an emergency measure, conducted as part of the Treasury’s debt management strategy.
Typically, these buybacks aim to improve liquidity in segments of the government bond market, supporting market stability and managing the government’s debt portfolio. Under the programme, the Treasury conducts auctions to repurchase Treasury securities based on their remaining maturities.
“The increase in the size of the buyback operations this time is expected to help stabilise elevated Treasury yields amid heightened uncertainty over the global economy, energy prices and inflation,” said the think tank.
The Treasury also faces pressure from continued government borrowing to finance the fiscal deficit, which has contributed to upward pressure on bond yields, noted K-Research.
Chayanon Rakkanjanan, co-founder of Finnomena financial platform, said Wall Street is calling the recent bond buyback strategy “Operation Twist 2.0”, drawing parallels with the Federal Reserve’s earlier Operation Twist that involved selling short-term bonds and buying longer-term securities to push down long-term yields.
The key difference this time is the Treasury rather than the Fed is taking the lead in buying long-term Treasuries. Treasury purchases have reportedly doubled from around $2 billion to $4 billion, sending a strong signal to the bond market despite the relatively small amount involved.
The strategy comes as 20-year Treasury yields have risen above 5.2%, reflecting growing concerns over the US government’s borrowing costs.
“Mr Bessent, with his background as a hedge fund investor, is seen as attempting to stabilise the long end of the Treasury market and prevent borrowing costs from rising further,” said Mr Chayanon.
WHY DO RISING BOND YIELDS MATTER TO GLOBAL MARKETS?
Treasuries are the benchmark “risk-free” asset for global finance, anchoring the pricing of mortgages, corporate bonds, emerging market debt, private credit and stock valuations worldwide.
A sustained rise in US yields can pull capital towards dollar assets, strengthening the dollar and tightening financial conditions abroad, which makes it harder for lower-rated companies, indebted governments and emerging market borrowers to refinance.
For the US government, Treasury yields are what the government pays to borrow. Higher yields raise federal interest costs. Rising interest costs leave policymakers less room to fund other priorities without raising revenue, cutting elsewhere or borrowing more.
That creates concern that the fiscal trajectory itself can push yields higher as investors demand more compensation to hold long-dated debt, which in turn raises the cost of servicing a debt load that keeps growing.
For , insurers and pension funds, a ?fast uptick can also erode the market value of existing long-dated bonds. Institutions forced to sell before maturity can lock in losses, even though the securities will repay face value if held to term.
Companies typically borrow at a Treasury yield plus a credit spread that compensates investors for default and liquidity risk. When the Treasury yield rises, corporate borrowing costs rise with it, and the pain is sharpest for companies issuing new bonds, refinancing debt or carrying floating-rate loans. Those that locked in low fixed rates years ago have more breathing room.
Higher borrowing costs can make capital-intensive projects such as data centres, energy infrastructure and industrial expansion less attractive, potentially curbing future investment and earnings growth. This is a particular concern for the tech sector, which is issuing record amounts of debt to finance artificial intelligence-related projects.
For consumers, the 10-year Treasury yield serves as an important guide for mortgage rates, as it generally moves in tandem with mortgage-backed securities. Higher rates shrink how much buyers can borrow for a given monthly payment and discourage existing homeowners with lower-rate mortgages from moving, weighing on home sales, construction and related spending.
Rates on new auto loans and other fixed-rate consumer debt also tend to drift higher as market rates and lenders’ funding costs rise, though the pass-through isn’t immediate or exact.
Credit card rates more closely track banks’ prime rates, which typically move with Fed policy. Here, rising long-term yields alone may not lift card rates right away, but expectations of a more restrictive Fed can push them higher.
Consumers locked into fixed-rate mortgages or auto loans are largely insulated until they refinance or start a new loan, while those carrying variable-rate debt feel the pinch faster.
HOW IS THE MARKET REACTING?
According to K-Research, following the announcement of the larger buyback operations, Treasury yields for maturities of five years and longer fell by 2-9 basis points from the previous day.
However, yields rebounded to around their previous levels the following day as tensions in the Middle East escalated again, prompting renewed concerns over energy prices and inflation.
Asia Plus Securities said the US stock market edged up by about 0.2% after Mr Bessent signalled the Treasury’s attempt to control the government’s long-term borrowing costs after Treasury yields rose to multi-year highs.
From another perspective, Treasury buybacks reflect the increasing pressure on the US economy and fiscal health from significantly higher interest costs. There’s also a risk that bond repurchases alone are unable to reverse the downward trend in the bond market, said Therdsak Thaveeteeratham, senior executive vice-president at Asia Plus.
The US dollar weakened, reflecting growing concerns over the US government’s borrowing costs and further intervention in the future. The US national debt, which exceeded $40 trillion for the first time after having doubled over the past decade, is also stoking fear that Trump’s tax and spending plans are unsustainable.
As the dollar weakened, gold prices surged past $4,500 an ounce. While gold and Treasury bonds are both major safe haven assets, they react differently to shifts in interest rates and monetary policy. Gold pays no yield, so when Treasury yields rise, the opportunity cost of holding gold increases. Conversely, falling yields boost gold.
Bitcoin ripped to a two-month high of more than $70,000 on Aug 19, its first trip past that level since June, as many investors view Operation Twist 2.0 as potentially positive for risk assets, including cryptocurrencies, if it successfully pushes down bond yields.
WHAT WILL HAPPEN NEXT?
Mr Chayanon said in the short term, the market is likely to become more cautious.
Investors who had been considering shorting long-term Treasuries because they expected long-term yields to rise further may now hesitate.
“Those already holding long-term bonds may also become less willing to sell aggressively because they will be thinking, ‘what if the Treasury comes into the market and buys even more?’ That could lead investors to close their short positions,” he said.
As a result, Mr Chayanon said he expects it will be difficult for long-term bond yields to rise significantly in the near term, which could benefit equities.
If long-term bond yields do not rise sharply, the gap between bond yields and equity earnings yields will not widen significantly, which could allow the stock market to move higher, he said.
“I think Mr Bessent has chosen the timing very carefully. Given his experience in the hedge fund industry, this is a fairly sophisticated piece of market timing,” noted Mr Chayanon.
“Over the next 1-3 months, I think the US market could have room to breathe and potentially move higher. The weaker dollar should also be positive for gold. We could potentially see gold reach around $4,800-5,000 an ounce by the end of this year.”