US Treasury to double long-term debt repurchases

(Sharecast News) - The US Treasury announced on Wednesday that it will double the size of its long-term government debt repurchases. It said in a brief statement that it was increasing "by at least double" the size of liquidity support buyback operations for bonds maturing in the 10- to 20-year and the 20- to 30-year ranges. The current maximum size of $2bn per operation will be at least $4bn per operation.

The change will take effect from 9 September and stay in place for the remainder of this refunding quarter, to 4 November.

"This increase in buyback operation sizes reflects Treasury's desire to provide greater liquidity support in longer-dated nominal sectors where there is consistent strong sponsorship from market participants, as evidenced by the significant volume of high-quality offers Treasury routinely receives in longer-dated buyback operations," the Treasury said.

Neil Wilson, UK investor strategist at Saxo Markets, said this was "a very strong sign" the Treasury has decided higher US yields are unacceptable, "and that the recent blowout in the long end is undesirable and needs counteracting by means other than a) raising short-term rates to re-anchor expectations or b) reining in fiscal drift".

Wilson added: "It resembles Operation Twist by seeking to support the long end and improve liquidity, which could put more pressure on the USD if the market interprets this as meaning easier financial conditions because it allows the Fed to avoid a monetary policy response and implies official support for the Treasury market; or in essence fiscal dominance."

Bond yields sank following the announcement, while US stock futures rallied.

"The abrupt move lower in yields delivered a big boost to US equity markets, which had come under pressure from the rumble towards multi-year/decade highs for sovereign yields," Wilson noted.