The Treasury Tripled the Size of Its Buybacks

The federal government owes just over $40 trillion with interest on that debt at $1.27 trillion over the last eleven months.

And those numbers continue to grow as the 30-year Treasury yield climbed to its highest level since 2007.

The Treasury’s current answer to that problem is to start buying its own high-interest long-term bonds back in larger quantities.

By buying these long-term bonds back, it can attempt to lower long-term costs by driving interest rates down and refinancing in the short term with Treasury bills, then, as that short-term debt matures, refinance again at lower long-term rates.

Prior to last week, the Treasury could buy up to $2 billion worth of bonds at a time. Treasury Secretary Scott Bessent increased that limit to $6 billion, and on September 10 bought $5.2 billion worth of long bonds in a single afternoon. It was the largest long-end buyback in the program’s history.

Stanley Druckenmiller thinks this is the wrong tool for the problem. In a Wall Street Journal op-ed in August, he argued the 30-year is not high because the bond market is broken. It is high because the government is borrowing an enormous amount and lenders want to be paid for it. A buyback does not change the borrowing. He wrote, “If the 30-year must trade at 5.5% to clear, that isn’t a crisis. It is an invoice.”