Last Week - 20-Year Highs in Long Yields, Treasury Intervenes
Long-term Treasury yields continued to rise to 20-year highs, with the long bond peaking at a 5.33% yield on Tuesday after the U.S. national debt broke through $40 trillion. Debt service on the national debt now exceeds $1 trillion annually - more than the entire defense budget and nearly as much as Medicare. The growing allocation of tax dollars to interest payments rather than domestic programs has become a structural force driving long-end yields higher. On Wednesday morning, Treasury Secretary Bessent announced that the Treasury would double the size of its longer-maturity debt buybacks from $2 billion to $4 billion for the current debt funding quarter, effective September 9 through November 4. The Administration has advocated that interest rates are too high, and this buyback expansion is a policy tool intended to lower long-term rates. In theory, the action should flatten the yield curve - creating more demand for long maturities while increasing supply of shorter maturities and T-bills to fund the purchases. Initially the news rallied the long bond yield down to 5.18%, but by week's end the market sold off and the long bond closed at 5.28%. The transaction is effectively an effort to cap long-term rates, and the Treasury retains the ability to get more aggressive with this tool should 30-year yields continue pressing higher.