U.S. Treasury Conducts Record Treasury Buyback as Bessent Signals Shift Amid Fed Inaction

As the Federal Reserve remains passive in the face of declining U.S. Treasury prices, the U.S. Treasury Department appears to be taking steps to stabilize the market independently.

On April 14, following the spike in Treasury yields triggered by former President Trump's tariff announcement, speculation arose that foreign holders were selling U.S. bonds to support their local currencies. This coincided with the unwinding of up to $2 trillion in basis trades. At that time, U.S. Treasury Secretary Bessent remarked that while he meets regularly with Fed Chair Powell, he may need to act independently if the Fed continues to stand by. He noted that the Treasury possesses a “large toolbox,” which includes the option to “substantially increase Treasury repurchases” targeting older bonds.

Six weeks later, Treasury prices remain under pressure, with the 30-year yield approaching 5%, and the Federal Reserve has yet to intervene. On Tuesday at 2:00 p.m. ET, the Treasury announced the results of its latest buyback operation, with a record-sized purchase totaling $10 billion—the largest single Treasury buyback in U.S. history. While such operations have been conducted regularly since April 2024, this marked an unprecedented scale.

The Treasury launched its first routine buyback program since 2000–2002 in May last year, aiming to improve liquidity in older, less actively traded securities. These operations have continued for over a year.While the Federal Reserve has traditionally played the lead role in the Treasury market through quantitative easing and secondary market purchases, market participants have likened the Treasury's actions to a “light QE.” These buybacks inject liquidity into the market, similar to the Fed’s Permanent Open Market Operations (POMO) or corporate stock repurchase programs.

The previous buyback of comparable size occurred in mid-to-late April, during another period of sharp Treasury market volatility. Tuesday’s operation focused on securities maturing between July 15, 2025, and May 31, 2027. However, the Treasury also released a preliminary notice for a new round of long-term bond repurchases scheduled for Wednesday, targeting securities maturing between 2036 and 2045, with a maximum repurchase amount of $2 billion—consistent with the prior month.

Last month, Société Générale's rates strategist projected that the Treasury could raise long-term repurchases up to $3 billion to support liquidity. Anshul Pradhan, Head of U.S. Rates Research at Barclays, also indicated the program may become “more flexible.”

The Treasury's increasingly active stance has prompted speculation over whether Bessent might eventually take broader measures to stabilize the bond market, particularly given the Fed’s reluctance to lower rates despite the core PCE index falling to its lowest level since the pandemic. This has raised questions about whether Bessent’s repurchase strategy could replace the short-term issuance approach adopted during the Yellen era—at least until the Fed decides to intervene.