Bessent’s Treasury Buyback Push Fades Within Days as US Debt Tops $40 Trillion

Treasury yields rise again despite expanded buybacks

Investor confidence erodes under a $40 trillion debt load

US Treasury Secretary Scott Bessent moved to expand Treasury buybacks to curb a surge in bond yields, but the effect did not last two days. With US government debt now above $40 trillion, investors are increasingly doubtful that short-term steps can calm the bond market.

The Wall Street Journal reported on Aug. 22 that selling pressure in Treasuries briefly eased after the Treasury Department unveiled the expanded buyback plan. Yields soon resumed climbing. The newspaper described it as “an eventful week in which Scott Bessent got schooled by the bond market.”

The 30-year Treasury yield had climbed to 5.31% on Aug. 17, the highest since June 2007. Higher Treasury yields mean lower bond prices.

On Aug. 19, the Treasury said it would at least double the size of its long-bond buybacks. The plan would raise purchases of off-the-run Treasuries to at least $4 billion from $2 billion. The move was aimed at limiting the rise in market interest rates and lowering borrowing costs across the economy.

At first, the plan appeared to work. Some investors who had been betting on higher long-term yields rushed to unwind those positions, sending Treasury yields temporarily lower.

Skepticism quickly returned. On the same day as the Treasury’s announcement, news emerged that total US federal debt had exceeded $40 trillion for the first time. Investors viewed the larger buybacks as a temporary fix rather than a fundamental solution.

Tradeweb data showed the 10-year Treasury yield ended Aug. 21 at 4.737%, up from 4.695% a week earlier. That left it above the level seen before the Treasury’s move.

Concern about the dollar also deepened. Investors embraced what the Journal called a “debasement trade,” selling dollars and buying gold and cryptocurrencies. The WSJ Dollar Index fell 0.7% over the week, while Bitcoin jumped 22%.

Some in the market also say the Treasury may increase short-term bill issuance to fund the expanded buybacks. That could lower pressure on long-term yields while increasing the burden at the short end.

The US fiscal strain is already severe. The Congressional Budget Office said the government’s annual interest costs have reached $1 trillion, more than five times the level in 2010.

The Washington Post said governments, rather than private borrowers, have been the biggest source of borrowing in recent years. Countries borrowed heavily after the 2008 financial crisis to support the recovery and increased borrowing again during the Covid-19 pandemic in 2020.

Market anxiety is unlikely to fade without credible measures to reduce the US fiscal deficit. Bessent told CNBC on Aug. 20 that the Trump administration was preparing announcements focused on fiscal discipline and reviewing changes to both revenue and spending.

Execution remains uncertain. Independent experts say any serious effort to restore fiscal health would require politically difficult debates over tax increases and cuts to programs including Social Security and Medicare. That would be a tough step ahead of the November midterm elections.

Lee Song-ryeol, Hankyung.com reporter yisr0203@hankyung.com