According to authorities, the bigger buy will help maintain liquidity in the markets, whereas the traders are looking at how the move will affect the growth in yields, which are at a level not seen since the pre-2008 crisis period.
Treasury buys more debt as long-term yields keep moving higher
The market was not acting in the manner that would suit the Treasury’s interest. The yields continued to climb after the announcement, and longer-term bonds even went up by as much as 5 basis points before coming back down. It should be noted that higher yields increase the cost of borrowing. One basis point is equal to 0.01 percent.
The 10-year yield hit 4.841% at press time, while the 20-year yield reached 5.314%. The 30-year yield rose about 5 basis points and moved through the closely watched 5.3% level before settling near 5.307%. Treasury’s buyback will take place on Thursday in a 20-minute window ending at 2 p.m. ET.
A few things are pushing yields higher. Federal debt has gone past $40 trillion. Tariffs and the war with Iran are adding to inflation concerns. Energy prices have jumped too, with crude oil breaking above $100 a barrel on Wednesday. Trading is usually quieter at the long end of the Treasury curve than in shorter maturities, even though the US government bond market is the biggest and most liquid sovereign debt market in the world.
Treasury is also issuing more debt. Supply this year is 11.8% higher than in 2025, while publicly held debt has climbed to $31.8 trillion, up 8.2%. Investors are being asked to take on more government paper while inflation worries are getting harder to ignore.
Iran war pushes inflation higher as Kevin Warsh faces pressure from Trump
The Federal Reserve is dealing with a harder inflation picture. Prices rose faster earlier this year as the Iran conflict drove energy costs higher.
The annualized inflation rate reached a three-year high in May before falling to 3.4% in July. Even after that drop, it was still 0.7 percentage point higher than a year earlier, with energy prices responsible for much of the increase.
President Donald Trump said Wednesday that oil prices probably would not fall before the midterm elections. After saying Iran “can’t hold out any longer,” Donald said its leaders are “desperate to try and affect the election.” He then predicted, “Right after the election, oil prices are going to be tumbling downward.”
Brent crude went above $100 on Wednesday for the first time since July as fighting in the Middle East got worse. More expensive energy could force the Fed to consider raising rates again, even though the White House wants the opposite. Last week, Donald said the Fed “must get smart” and lower rates. He also wrote, “A STRONG COUNTRY MEANS A LOWER INTEREST RATE.”
Federal Reserve Chair Kevin Warsh took over in May. Kevin said at Jackson Hole in August that it was “the Fed’s job to deliver stable prices,” but he stopped short of saying whether the central bank would raise rates soon.
Stanley Druckenmiller, who leads Duquesne Family Office and used to mentor Scott, criticized Treasury’s move in a Wall Street Journal opinion article. Stanley wrote:
“Once markets believe Treasury is defending a price, every rise in yields becomes a test of official resolve, and the operations must grow to survive the tests.”
He added that: “Governments defending prices against fundamentals always lose. The only variable is how much they spend before conceding.”
