Fed's Inaction Spurs Bessent to Act! U.S. Treasury Executes Record-Breaking Treasury Buyback

TradingKey - On Tuesday, June 3, at 2 p.m. EST, the U.S. Treasury announced the results of its unprecedented $10 billion Treasury buyback. This marks the largest single Treasury buyback operation in history. 

Since April 2024, the Treasury has conducted similar weekly operations, but this one sets a record in terms of scale.

Earlier this week, the yield on the U.S. 30-year Treasury briefly surpassed 5%, pushing bond prices into a precarious position. Meanwhile, the Federal Reserve opted to "stand aside," compelling the Treasury to conduct QE (Quantitative Easing) by purchasing a record amount of Treasuries.

Typically, the Federal Reserve is the primary actor in intervening in the Treasury market, executing QE and other monetary easing policies by purchasing large quantities of bonds on the secondary market. However, following a bond sell-off triggered by this year's "Liberation Day," U.S. Treasury Secretary Bessent stepped up.

In an interview, Bessent revealed that he has "weekly breakfast meetings" with Fed Chair Powell to exchange views. He indicated that if the Fed remains inactive, he might "intervene personally." He stated that a key tool for the U.S. Treasury is to "increase the scale of Treasury buybacks" and that they may "significantly expand the buyback scale" if necessary.

The bonds repurchased on Tuesday were of shorter maturities, covering those maturing between July 15, 2025, and May 31, 2027.

Is simultaneous short- and long-term bond buyback becoming the norm? 

On Tuesday, the Treasury also announced a new round of long-term buybacks scheduled for Wednesday, focusing on Treasuries maturing from 2036 to 2045, specifically 10-year and 20-year bonds. The maximum buyback amount is set at $2 billion, consistent with last month's scale.

Rate strategists at Société Générale anticipate that the U.S. Treasury might increase the scale of long-term buybacks in the future, potentially reaching $3 billion, as a means to enhance liquidity.

The Treasury's record buyback raises questions: will Bessent-style buybacks become a short-term norm until the Federal Reserve takes action?