| The national debt crossed $40 trillion this month, and the 10 year yield touched 5 percent. |
| LEAD ESSAY / 4 MIN / 4 DOCUMENTS / STORY FILE BUYBACK |
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| Let me ask you where your mortgage rate comes from. |
| It comes off the long end of the Treasury market. That's where the government borrows for ten, twenty and thirty years. And the long end had a rough summer. The 30 year yield climbed toward its highest level in almost two decades, and the 10 year crossed 5 percent. |
| So Treasury stepped in. On August 19 it raised the cap on each long-end buyback operation from $2 billion to at least $4 billion, effective September 9. A buyback is the government purchasing its own older bonds back from the investors who hold them. Fewer bonds outstanding, higher price. Higher price, lower yield... |
| Treasury never called this price setting. The operations were described as liquidity support, which in plain English means making sure buyers and sellers can trade without long delays. Fair enough, as far as it goes. It's an incomplete description, though. |
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| Because a buyback has two sides. Government pays cash, and an investor collects it. The sellers into these operations are primary dealers and large funds holding older bonds that trade thinly. They get a bid they wouldn't otherwise have. And the size of that bid just doubled. |
| Size changes what this is. At $2 billion an operation, it's a small program. Twice a month, at $4 billion, across two long sectors, you have a standing buyer with a published schedule. Traders can see it coming. And they price what they can see... |
| Bessent has no patience for his critics. |
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| "If some of the Bloomberg Terminal bros are unhappy... that's too bad" |
| SCOTT BESSENT, VIA FORTUNE |
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| His own mentor took the other side, though. Stan Druckenmiller argued in the Wall Street Journal that a credible fiscal package would do more for yields than price management would. The Treasury secretary studied under him. He shorted the yen alongside him. So this wasn't a stranger with an opinion... |
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| Timing is what people noticed. National debt reached $40 trillion this month. Interest on it is expected to pass $2 trillion in fiscal 2026. Every basis point shaved off the long end saves Washington money on the next thing it borrows. |
| And you pay that interest. It comes out of the same budget as the rest of the government. A lower 30 year yield is worth far more to Treasury than it will ever be worth to you. The government borrows in trillions. You borrow in hundreds of thousands. |
| FILED / TREASURY PRESS RELEASE, AUGUST 19 |
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| Treasury raised the maximum size of each buyback operation in the 10 to 20 year and 20 to 30 year sectors, from $2 billion to at least $4 billion. The change took effect on September 9 and runs through November 4. One reason is given for it: consistent strong sponsorship from market participants. |
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| Economists split on the reason why. Christina Parajon Skinner served at Treasury under Bessent until August, and she calls the program liquidity management. Yiming Ma at Columbia was less comfortable. A government that has to announce it will step in, she warned, has already told the market something about confidence. |
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Kevin Warsh went the other way |
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| Now compare two dates. On September 16 the Federal Reserve raised the federal funds rate a quarter point, to a range of 3.75 to 4 percent. That was its first increase since 2023, and the vote was 12 to 0. Sixteen of eighteen officials expect another one before the year ends. |
| So the central bank is pushing short rates up. Treasury is holding long rates down from the other end. You can read the announcement yourself. It runs a page, and it mentions liquidity rather than deficits, yields or targets... |
| Here's your stake in it. If the buybacks work, your mortgage gets a little cheaper and the federal interest bill gets a lot cheaper. Should they stop working, the market has already learned the price at which Washington flinches, and it will test that price again. Either way, the cash went out this month to investors who were already holding those bonds. You weren't one of them. |
