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Unless you’ve been living under a rock, or have maybe been lost down a rabbit hole of dataviz-rendering, you’ll have seen that Treasury secretary Scott Bessent has arrived to save the US bond market. Here’s how that is going at time of pixel:
US long-term government bonds were hit with a fresh wave of selling on Thursday as Treasury secretary Scott Bessent’s intervention to prop up the market failed to soothe investor jitters.
Long-dated US Treasury yields have been rising quite a lot, further complicating the Treasury’s already complicated job of refinancing the federal government’s $40tn of debt at rates that don’t make budget maths too awks. As thing stand, Table S–1 (Economic Assumptions) of the Trump administration’s federal budget assumes the Fed will cut and that bond yields will rally. And the bond market is not, so far, obliging:
In the absence of surprisingly strong economic growth (the budget baseline already assumes around 3 per cent per annum) or more sustained overshoots of the Fed’s target in order to inflate the problems away (the budget assumes inflation at around 2.2 per cent per annum), higher bond yields mean that the Treasury will be locking in higher borrowing costs. And this in turn means the US is going to be recording even larger budget deficits. That, or some new Department of Government Efficiency is able to make the maths work better, which seems unlikely.
So we can see why secretary Bessent pulled out his big guns, announcing that he would “at least double” nominal long-end liquidity support buyback operations.
Presumably they’ll stop minting long-dated bonds too? Hmm. The US Treasury issued its quarterly refunding statement only two weeks ago. And the statement said that they planned to continue to sell just as many long-dated US Treasuries this quarter as they sold last quarter. Which is to say they plan to print $111bn of new 20-year and 30-year bonds:
This $111bn is gross issuance. And we need to adjust it for the previously announced tentative schedule of Treasury buyback operations, which included four scheduled operations to go out and buy a maximum of $2bn of 20-30yr Treasuries — the first of which was executed on August 17.
Yesterday’s announcement of plans to “at least double” the rest of the scheduled buyback operations can be read as a change to net supply of at least $6bn over the quarter. But quite possibly more.
In light of the news, how many long-dated US Treasuries does the administration plan on dumping on the market this quarter?
By our count, following the announcement, Treasury is set to issue a net $97bn of new 20-30yrs this quarter, down from a previous $103bn.
We’re not entirely unsympathetic to the idea that finance ministries around the world shouldn’t stop pumping out long-dated securities when the economics of doing so look bad. But as the market appears to be telling the Treasury secretary, this announcement doesn’t really move the needle.
Further reading:
— US long-term bonds slide as Treasury secretary Bessent’s intervention fails to soothe investors (MainFT)
— ‘Treasury demand has become materially more valuation-sensitive’ (FTAV)
— Big Brother Bessent is watching you (FT Unhedged)