The size of the U.S. Treasury bond buyback program was revealed on Wednesday, with Wall Street predicting it could reach as high as $10 billion, but this was still insufficient to reverse selling pressure on long-term bonds.

The U.S. Treasury is about to disclose the scale of its long-term Treasury bond repurchase program. Wall Street institutions have differing predictions on the size of the repurchase, and the market is skeptical about whether this policy tool can effectively boost demand in the long-term bond market.

In mid-August, U.S. Treasury Secretary Bessant announced that the scale of long-term Treasury bond repurchase operations would be at least doubled. The Treasury Department is expected to announce the maximum size of this operation on Wednesday and officially launch the repurchase of 10- to 20-year Treasury bonds on Thursday.

Morgan Stanley estimates that a single share buyback could reach as high as $10 billion, JPMorgan Chase estimates it to be between $6 billion and $8 billion, while Barclays estimates it to be just over $4 billion, with a wide range of estimates.

According to Wrightson ICAP, increasing the size of a single operation to $6 billion could reduce the quarterly net issuance of Treasury bonds with maturities of 20 years or more by about 27%; increasing it to $10 billion would reduce the net supply by about 55%.

However, many institutions remain skeptical about whether this move can substantially improve the supply and demand situation in the long-term bond market.

Bank of America points out that Bessant's expanded repurchase program has so far "done little to bring buyers back to the Treasury market"; Bank of Montreal believes that even with a significant increase in the size of the repurchase program, it will not solve the fundamental factors driving up 10-year and 30-year yields.

The yield on the 10-year U.S. Treasury note remained high on Tuesday.

Selling pressure persists at the long end of the market, raising doubts about the effectiveness of share buybacks.

Despite the Ministry of Finance's attempt to boost long-term demand through repurchase operations, many institutions are not optimistic about its effectiveness.

In a report dated September 4, Bank of America strategists Mark Cabana and others stated that Bessant's expanded repurchase program has "almost brought buyers back to the Treasury market," noting that the recent sell-off stemmed from renewed market expectations of a hawkish Federal Reserve policy, skepticism about the policy path, and persistently weak demand for long-term bonds.

The bank believes that only a significant weakening of economic data or a substantial correction in the stock market would be most likely to drive a market reversal; a continued decline in oil prices could also provide some support.

In a report dated September 4, BMO strategists Ian Lyngen and others maintained a short-term bearish stance on long-term investments, favoring a "sell on rallies" strategy rather than a "buy on dips" approach.

The bank believes that given that overall financial conditions in the United States are at one of the most relaxed levels in decades, the bond market sell-off is likely to continue unless there is a more sustained decline in risk assets or a significant widening of corporate credit spreads.

Institutions tend to continue betting on a steeper yield curve.

In terms of specific trading directions, institutions generally tend to bet on a steeper yield curve, but there are differences in duration allocation.

Bank of America is bullish on 5-year U.S. Treasuries, believing that weak economic data and heavy short positions in the market will provide support. It also suggests betting on a steepening of the 5-year and 30-year yield curve. The bank stated that if employment and inflation data are weak, medium-term Treasuries could rise, but longer-term Treasuries may lag behind.

In a report dated September 4, Goldman Sachs strategists George Cole, William Marshall, and others favored trading on steepening 5-year and 10-year SOFR curves , with an entry point of 13 basis points, a target of 23 basis points, and a stop-loss at 7 basis points.

Goldman Sachs also pointed out that fundamental factors such as cyclical resilience, inflation risks, fiscal policy, and AI-related debt supply have not changed, and the persistent energy price risk limits the room for global yields to continue to fall from recent highs.

Deutsche Bank, on the other hand, tends to bet on rising term premiums and a steeper yield curve from a longer-term and structural perspective, citing unfavorable fundamentals and a low probability of large-scale fiscal consolidation.

The Federal Reserve's policy path remains a key variable.

Many institutions consider the Federal Reserve's September interest rate decision as a key variable influencing market trends.

BMO believes the key to whether to raise rates in September lies in whether the Fed's swing traders are convinced that inflation is falling toward the 2% target, and whether the August inflation data is sufficient for the hawkish camp to secure the seven votes needed for a 25 basis point rate hike. The bank's baseline forecast remains that the Fed will "hold rates steady."

Goldman Sachs believes that term premiums could fall if the market can better assess the Fed’s response function and policy uncertainty decreases, but this depends to some extent on the September interest rate decision and its communication.

The bank also noted that if the bond market experiences a larger rise, it is expected to be led by short-term bonds, and this would require a shift in the macroeconomic environment sufficient to support a more dovish policy stance.

Goldman Sachs also commented on the possibility that Norway's sovereign wealth fund might reduce its holdings of US Treasuries by about $75 billion due to adjustments in its bond portfolio: "From the perspective of overall US duration demand, the impact of this scale is relatively small, and the adjustments are expected to be implemented gradually, without creating a concentrated shock."

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