The US Treasury will at least double the maximum size of its liquidity-support buyback operations for longer-dated government securities from September 9, increasing the limit from $2 billion to at least $4 billion per operation.
The change will apply to nominal coupon securities in the 10-year to 20-year and 20-year to 30-year maturity sectors. The new limit will remain in place through November 4, 2026, the end of the current refunding quarter. Treasury said it will provide details on future buyback sizes at its next Quarterly Refunding on November 4.
The move is aimed at improving liquidity in the longer-dated US government bond market. Treasury said it has seen “consistent strong sponsorship from market participants” and a significant volume of high-quality offers in these longer-dated buyback operations.
Why is Treasury increasing the buybacks?
Treasury’s buyback programme gives investors an opportunity to sell certain older government securities back to the government. These are known as off-the-run securities because they are no longer the newest issues of a particular maturity.
Such securities can be less liquid than newer Treasury bonds. By offering to buy them regularly, Treasury can provide an additional source of demand and potentially make it easier for investors to trade them.
The programme, launched in 2024, separates liquidity-support buybacks from cash-management buybacks. The former are designed to support market liquidity, while the latter help Treasury manage its cash balance and bill issuance.
The latest decision is related to only the liquidity-support programme and specifically increases the size of selected longer-dated operations.
Treasury said the increase shows the strong interest it has seen from investors seeking to sell eligible securities. It did not describe the move as an emergency response to a market crisis. Instead, the department said the larger operations would provide additional liquidity where market participants have shown strong demand.
What does $4 billion limit mean?
The key change is the maximum amount the Treasury can purchase in an individual operation. For the affected 10-year to 20-year and 20-year to 30-year sectors, the current maximum is $2 billion. From September 9, the Treasury will be able to purchase at least $4 billion per operation.
However, that does not mean the Treasury will automatically buy $4 billion of bonds every time. The actual amount will depend on the offers it receives and the securities it selects.
The Treasury’s latest announcement also does not change the government’s broader borrowing programme. The US government will continue to issue Treasury securities to finance government operations and refinance maturing debt. Buybacks under the liquidity-support programme serve a different purpose: improving the trading conditions of existing securities.
The 30-year Treasury yield recently reached its highest level since 2007, according to Financial Times’ earlier report.
Treasury’s announcement, however, should not be interpreted as a commitment to reduce the supply of long-term Treasury debt. It is primarily a measure to provide greater liquidity for existing securities.
What will happen after September 9?
The larger buyback limit will apply through November 4, when Treasury holds its next Quarterly Refunding. The Treasury said it will provide information on future buyback sizes at that meeting. It will also release an updated tentative schedule for the upcoming operations.
For now, from September 9, Treasury will increase the maximum size of selected liquidity-support buybacks for 10-year to 20-year and 20-year to 30-year nominal coupon securities from $2 billion to at least $4 billion per operation.