How will Bessant "buy back US Treasury bonds"? A glimpse of the process emerged tonight.
The long-term Treasury bond repurchase program spearheaded by U.S. Treasury Secretary Bessant will reach a critical juncture tonight.
The U.S. Treasury Department is expected to release a statement tonight announcing the specific size of its bond repurchase operations. This will be the first disclosure since the market-shocking statement on August 19th that repurchases would at least double. The outside world will then get a glimpse into the scale of the Treasury Department's repurchase operations and how far Bessant is willing to go.
According to Bloomberg, the announcement is expected to be released at 11:00 AM Washington time (11:00 PM Beijing time) on Wednesday, September 9th. The repurchase targets are existing Treasury bonds with maturities of 10 to 20 years, with the actual transaction taking place on Thursday, September 10th. The timing of the bond repurchase announcement, released hours before the 10-year Treasury auction, is sensitive; both larger and smaller-than-expected amounts could trigger market volatility.
Why did Bessent make his move?
In August, yields on long-term U.S. Treasury bonds surged, with the 30-year yield hitting its highest level since 2007.
Speaking at an event at Southern Methodist University in Texas on Tuesday, Bessant made his reason for the move clear: "There's a kind of 'fever' in the market, and I don't want the market to be narrative-driven."
He further explained that the prevailing narrative in the market in August was that "the United States will be unable to repay its debts," which he called "absurd, yet it became the dominant narrative."
Against this backdrop, the Treasury Department announced on August 19 that it would "at least double" the originally planned $2 billion repurchase program. This announcement, made outside of the quarterly routine announcement cycle, broke the Treasury Department's long-held principle of "regularity and predictability," catching the market off guard.
The battle of scale: 4 billion, 6 billion, or 10 billion?
Regarding tonight's announcement, the market is most concerned about only one question: how large is the scale?
Bessant himself declined to disclose specific figures, but his public statements have already raised market expectations, with most participants believing the size will exceed $4 billion.
- Morgan Stanley estimates that the actual cap for a single operation is approximately $10 billion —beyond this level, funding sources (especially cash in the Treasury’s general account) will become a constraint.
- Lou Crandall, senior economist at Wrightson ICAP , believes that $5 billion to $6 billion is a reasonable starting point, but he also acknowledges that a larger increase is not impossible given the rapid shift in the Treasury’s strategy over the past few weeks.
- Crandall also pointed out that a significant increase in the size "would be tantamount to admitting that the Treasury Department did not think things through in its hasty statement on August 19."
Barclays strategists Anshul Pradhan and Demi Hu suggested another possibility: the Treasury might set the cap in an open-ended statement—"at least $4 billion per operation"—to retain flexibility, but this would mean the market would lack a clear roadmap.
The impact of scale is substantial. According to Wrightson ICAP calculations, increasing the repurchase size to $6 billion per transaction would reduce the quarterly net issuance of 20-year or longer-term Treasury bonds by about 27% ; increasing it to $10 billion would cut supply by about 55% .
Given the sensitive timing, how will the market react?
The timing of this repurchase announcement is particularly delicate.
The repurchase announcement for Wednesday, September 9th, will be released hours before the Treasury's 10-year bond auction that day, with a 30-year Treasury bond auction scheduled for Thursday. If the repurchase volume exceeds expectations, it could lower long-term yields in the short term; if it remains at only $4 billion, it could disappoint the market and further exacerbate selling pressure.
Currently, the yield on 10-year Treasury bonds is higher than last month's level and close to the 2023 high.
Bloomberg macro strategist Brendan Fagan said, "Traders will be digesting the repurchase size in real time, and a larger-than-expected operation could be interpreted as a stronger signal from the Treasury, initially likely depressing long-term yields—even though the nominal size of the program is still small relative to the overall Treasury market. Swap spreads will provide clearer market feedback. "
Traders generally believe that any surprises in the size or pace of repurchase agreements are more likely to be reflected first in the 30-year swap spread rather than in the direct yield – because the spread is more sensitive to changes in supply, while bond prices are still dominated by global macroeconomic factors.
Bigger problems remain unresolved
Beyond scale, the market is waiting for more information.
The statement on August 19 mentioned that an updated tentative repurchase plan "would be released later," but it has not yet been released. Furthermore, the source of the repurchase funds is also unclear—the market generally assumes that the Treasury will issue additional short-term treasury bills (with a maturity of no more than 12 months), but there is also speculation that the Treasury may use its general account cash balance.
Given last month's sudden action, some investors expect the Treasury to not provide further guidance beyond this repurchase and to continue with a case-by-case approach.
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