U.S. Treasury Doubles Bond Buybacks to Drive Long-Term Yields Lower

The U.S. Treasury has announced that it will double the size of its “liquidity support” buyback program — a move that GoldSeek commentator Mike Maharrey characterizes as a transparent effort to manipulate the bond market.

According to the Treasury's announcement, the department will increase buybacks of Treasury securities in the 10–20 year and 20–30 year maturity sectors from a maximum of $2 billion to $4 billion per operation. The expanded buyback operations begin September 9 and run through November 4. Buybacks themselves are not new for the Treasury: the department used them in 2000–2002 to retire debt during a brief stretch of budget surpluses, and resumed regular operations in 2024 as a liquidity-support tool. These operations are also distinct from the Federal Reserve's quantitative easing — the central bank's bond purchases are funded with newly created money, whereas the Treasury pays for its buybacks with proceeds from other borrowing.

How the Buyback Works

In practice, the Treasury will purchase older long-term bonds on the open market and retire them. Those older issues — known as “off-the-run” securities — tend to trade less as activity migrates to each newly issued benchmark bond, and supporting their liquidity is the stated purpose of such buyback programs. The increased demand raises bond prices and pushes yields lower, which benefits the federal government by reducing interest rates on newly issued debt at the long end of the curve.

The buybacks will be funded by selling shorter-term notes and bonds. As Maharrey frames it, the Treasury is effectively borrowing money to buy debt from people who have already lent it money, so that it can borrow more money from other people at a slightly lower interest rate. That calculus matters, he notes, because the federal government is already paying more than $1 trillion annually in interest expense. In his words: “If it sounds a little like a Ponzi scheme, well…”

The move had an immediate effect. The 30-year Treasury yield closed Tuesday, August 18, at 5.31 percent, having touched 5.34 percent intraday — the highest yield since 2007. By Wednesday's close, it had dipped to 5.19 percent.

Ramifications of Yield Curve Intervention

Stripped to its essentials, the market has been signaling, “We require a much higher yield to hold very long-term U.S. government debt.” The Treasury's response was to become a larger buyer in precisely the section of the curve under the most stress — the 20-year maturity, revived in 2020, has persistently traded cheaply relative to neighboring maturities and at times drawn weak auction demand, and the expanded buybacks concentrate on the sectors around it.

Within a $32 trillion bond market, the $4 billion intervention is relatively small. However, it signals that the Treasury is willing to step in and manipulate the long end of the yield curve. It also suggests, Maharrey argues, that the department is worried about the state of the bond market and its ability to continue funding the federal government's borrow-and-spend trajectory.

The Treasury describes the operation as a “liquidity intervention” intended to maintain “market plumbing.” Maharrey counters that there is no plumbing problem, and that the intervention does not solve the fundamental issue: demand for U.S. debt has weakened, with investors demanding higher long-term yields due to ever-increasing federal deficits and inflation expectations. The buyer base has also shifted: since 2022, the Federal Reserve has been letting its Treasury holdings roll off under quantitative tightening, leaving private investors to absorb a growing share of new issuance.

Eric Robertsen, global head of research at Standard Chartered, said he would not describe the increase in yields “as being a function of or exacerbated by irrational market conditions.”

“The only conclusion we can draw is that yields reached a level that they don't like, and I think that suggests a willingness to try and control or intervene against natural supply and demand,” Robertsen said.

The timing of the announcement was telling. The Treasury held a 20-year bond auction this past Wednesday as yields were coming down — in other words, it pushed yields lower ahead of the auction and, ostensibly, sold the new bonds at a slightly lower rate than it otherwise would have. The August quarterly refunding statement, which laid out upcoming issuance, showed the Treasury plans to sell $125 billion in 3-, 10-, and 30-year securities, including a $25 billion 30-year bond.

Buying back old long bonds while continuing to issue new debt can improve liquidity and market functioning, but it cannot make the government's financing requirement disappear. The federal government must keep borrowing, and the world's lenders, in Maharrey's telling, seem to be saying, “no thanks.”

The impact of the move also appears to have been short-lived: by Thursday morning, the yield on the 30-year Treasury was back up to 5.24 percent. The buyback calendar runs through November 4, ending just before the Treasury's next quarterly refunding announcement in early November, where the department will set its issuance plans for the months ahead — the first formal checkpoint on whether the doubled operations are a temporary escalation or a standing feature of debt management.

Risks of the Intervention

This kind of yield curve intervention comes with risks. The Treasury will likely issue more short-term debt to cover the buybacks, exposing the government to refinancing risk if rates on the short end of the curve begin to rise. The move could also undermine confidence in the bond market if investors take it as a signal that the government cannot tolerate market-clearing long-term rates, given the rising interest expense on the $40 trillion national debt. That concern is amplified, Maharrey notes, by the view among many analysts that the bond market is in the early stages of a secular bear market.

Impact on Precious Metals

A Treasury willing to step in and suppress yields is, in Maharrey's assessment, bullish for gold and silver. Because gold is a non-yielding asset, conventional wisdom holds that a higher-rate environment is bearish for the yellow metal, while lower rates are typically seen as supportive.

The gold market reacted accordingly. Gold soared on the news, pushing back above $4,500 an ounce this past Wednesday — the first time it had risen above that level in two months. Silver also posted a strong gain, rising above $68 an ounce.

For now, the optics of the operation matter more than its scope. If markets take the Treasury at face value and interpret the buybacks as a plumbing fix, the impact is unlikely to be significant. However, if markets read between the lines and recognize it as transparent rate manipulation designed to control the federal government's borrowing costs, the result could be a more significant pivot toward precious metals.

This article is based on a commentary by Mike Maharrey, originally published by GoldSeek.