US Treasury Secretary Bessant: The US Treasury market is in "good shape," and the smaller-than-expected repurchase volume was a deliberate choice.

U.S. Treasury Secretary Bessant on Thursday defended a smaller-than-expected Treasury repurchase operation and downplayed concerns about a recent sharp rise in yields, saying the U.S. Treasury market was in "good shape."

On September 10, the final transaction amount of the U.S. Treasury's repurchase of U.S. Treasury bonds was only $5.19 billion, while the Treasury had previously announced that the maximum repurchase amount was $6 billion.

In a media interview, Bessant stated that the relatively small size of the U.S. Treasury's repurchase this time was not due to insufficient market demand, but rather because the market offers were not cheap enough, and the Treasury actively controlled the pace of purchases.

He further revealed that the Treasury typically receives offers of around $20 billion, but this time it only received about $10 billion. This means that investors holding long-term Treasury bonds chose to hold their bonds rather than sell them back to the Treasury, which Bessant interpreted as a signal that the market still has confidence in long-term US Treasuries.

He also cited the strong performance of the two recent Treasury auctions as evidence of a healthy market, and said that investors are not currently demanding an additional risk premium for long-term US Treasuries.

Wall Street News reported that the U.S. Treasury Department announced it will conduct a repurchase of up to $6 billion in 10- to 20-year U.S. Treasury securities on Thursday. This amount is three times larger than the previous maximum of $2 billion for a single long-term bond repurchase and also exceeds the "at least $4 billion" guidance announced on August 19.

However, the market's first reaction was that US Treasury bonds continued to fall. Bloomberg Markets commented bluntly that this was "nothing impressive at all," and that $6 billion was far below market expectations, not even enough to "smooth out rather than reverse" the trend of long-term yields.

Peter Boockvar, chief investment officer at OnePoint BFG Wealth Partners, said that some investors had expected the buyback to reach $7 billion to $8 billion, and the rising yields were a reaction to this unmet expectation.

On Thursday, amid stronger-than-expected PPI inflation , the yield on two-year U.S. Treasury bonds continued to rise by 13 basis points to its highest level since 2024, while the yield on ten-year bonds hit a new high since 2023.

This round of US Treasury sell-offs coincided with a sharp rise in oil prices. Bessant reiterated that the recent correlation between the bond market and energy prices is unusually close, suggesting that the current rise in yields is not primarily related to market concerns about fiscal conditions, but rather reflects changes in inflation expectations due to energy price fluctuations.

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