The US Treasury Department announced on August 19 that it will "at least double" its buyback auctions of Treasury 10-year notes, 20-year bonds, and 30-year bonds, raising the maximum size of each operation from $2 billion at face value to $4 billion at face value. The enlarged auctions will run from September 9 through November 4, after which the department said it will provide more information about future buybacks.

In a buyback auction, the Treasury repurchases older, already-issued securities from the market rather than selling new ones. The $2 billion and $4 billion figures are caps measured at face value — the amount the government repays at maturity — not the market price it may actually pay for long-dated bonds trading at deep discounts.

The Treasury said it would double the auction amounts in "the 10-year to 20-year sector and the 20-year to 30-year sector."

Seven buyback auctions across those two sectors are scheduled during the period, with each operation rising from $2 billion to $4 billion in face value, so that total buybacks would increase from $14 billion to $28 billion in face value:

• Sep 10: 10-year to 20-year
• Sep 24: 20-year to 30-year
• Oct 01: 10-year to 20-year
• Oct 08: 20-year to 30-year
• Oct 15: 10-year to 20-year
• Oct 27: 20-year to 30-year
• Nov 04: 10-year to 20-year

Not QE but a debt swap

Writing on Wolf Street, Wolf Richter characterized the move as "not QE but a debt swap." Quantitative easing involves money creation — buying notes and bonds with newly created ("printed") money — something only the Federal Reserve can do, and which the Fed did until 2022. The Treasury Department cannot create money; it obtains funds only by collecting taxes and by borrowing. Because 100% of tax receipts are already spoken for, every incremental dollar the department spends on anything, including buybacks, is borrowed money.

The scale is also small relative to the market, the article argued. There are $4.4 trillion of 10-year notes outstanding and $5.5 trillion of 20-year and 30-year bonds outstanding — combined, nearly $10 trillion. The additional $14 billion of buybacks over the period would amount to a little over one-thousandth (0.14%) of those outstanding securities. Moreover, that $14 billion would be obtained through increased issuance of other securities, such as T-bills — the Treasury's shortest-dated instruments — at higher interest rates.

Because the Treasury cannot print money and must issue debt to buy back debt, and because the amounts are too small to matter, Richter argued that the program's sole purpose is to verbally manipulate the bond market to push up bond prices and push down long-term yields — rates that serve as benchmarks for borrowing costs across the economy. The bond market "loves to be manipulated" toward rising prices, he wrote, because existing bondholders — especially leveraged funds — can make a lot of money and "just need a buy signal," and Treasury Secretary Scott Bessent "just gave them another buy signal." Such effects work only briefly, the article contended.

The previous such episode cited was the joint US-Japan yen intervention at the beginning of August (Wolf Street), which caused bond prices to rally and yields to drop for only a brief period before "fizzling miserably." The 30-year yield subsequently rose to a new two-decade high, and 30-year bonds were then sold at a Treasury auction at the highest yield since 2001 (Wolf Street), which "spooked" Bessent.

Buybacks under Yellen and earlier programs

Former Treasury Secretary Janet Yellen started the buyback program in April 2024, after the 10-year Treasury yield had briefly hit 5% in October 2023 (Wolf Street). Since then, the article noted, the 30-year Treasury yield has continued to rise.

Treasury buybacks are not new. The department bought back older Treasury securities from 2000 through 2002 — an era when the federal government was running budget surpluses — and from 2014 onward conducted buybacks on a minuscule scale — once or twice a year, in amounts such as $25 million annually — "just to keep the plumbing working."

The interest-expense arithmetic

The article also detailed how buybacks of long-dated bonds carried at huge discounts can raise the government's interest expense. At the 20-year to 30-year buyback auction on August 19, the Treasury bought back $175 million face value of a 30-year bond issued in February 2021 and maturing in February 2051, with a coupon interest rate of 1.875% (CUSIP 912810SU3, the security's unique identification code). It paid 52.375 cents per $1 of face value — a discount of 47.625% — or $91.7 million in total.

To fund the buyback, the Treasury borrowed at today's interest rate; with T-bills, that is close to 4.0%. In effect, it reduced its cheap debt and increased its expensive debt: it borrowed $91.7 million of new debt at about 4% (an annual interest expense of about $3.7 million) to replace $175 million face value of old debt with a 1.875% interest rate (an annual interest expense of about $3.3 million). Little changes as a result, the article concluded: the debt comes down slightly because of the discount, but interest expense in dollar terms rises a little, causing the deficit to increase a little.

For the day of the announcement, the move had the desired effect of bond buyers bidding up prices: the 10-year Treasury yield fell by about 5 basis points and the 30-year Treasury yield fell by about 8 basis points — the same kind of brief reaction that came directly after the joint US-Japan intervention, according to the article.