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The Treasury Just Stepped in to Support Long-Term Bonds. Here’s What to Know
Traders work on the floor of the New York Stock Exchange on Wednesday, Aug. 19. Wall Street staged a rebound after the Treasury said it plans to boost buybacks of longer-dated bonds. Credit: Michael Nagle / Bloomberg via Getty Images KEY TAKEAWAYS The U.S. Treasury is buying back long-term bonds to ease rising yields. The yield on 30-year Treasury bonds slightly fell after hitting its highest level since 2007. Investors are cautious about long-term bonds amid rising debt concerns and uncertainty around the Federal Reserve. A rough week for bond markets calmed on Wednesday after the U.S. Treasury Department announced a band-aid for a risky surge in long-term borrowing costs. The yield on the 30-year U.S. Treasury bond hit its highest level since 2007 on Tuesday, threatening to make homebuying and business lending more expensive. Stock markets also fell on Tuesday over those concerns. One reason behind those moves was that the Treasury had been finding slightly fewer buyers for its 30-year bonds. To make them more attractive to investors, the Treasury started paying higher interest on its bonds, offering yields above 5% for the federal government to borrow over 30 years. But the Treasury on Wednesday announced a bigger buyer in the market: itself. Through an existing program that officials say will grow “by at least double,” the Treasury is buying back some longer-term securities ranging between 10 years and 30 years. Details are still pending, but the plan appears to be for the government to borrow more in shorter terms rather than a couple of decades out. Why This Matters Rising long-term Treasury yields can push mortgage rates and business borrowing costs higher. The Treasury’s intervention may provide some relief, but concerns about U.S. debt and inflation remain. It is a temporary fix “to calm nerves with long yields under meaningful upward pressure,” wrote Padhraic Garvey, regional head of research for the Americas at the Dutch bank ING. And markets reacted accordingly, with the yield on the 30-year U.S. dropping to 5.19% in mid-morning trading, down from 5.29% on Tuesday. The announcement appears to be a signal from the Treasury that it’s “watching and monitoring and prepared to take action,” Garvey wrote, hesitant about yields getting too high. But the action is likely to only have a temporary effect, he added. “It will dampen but not abort the pressure,” he wrote. Investors across the globe have been dumping bonds in Japan, France and elsewhere as they worry about rising debt loads—a worry that analysts say is also causing more concern over U.S. debt. They’re also a bit more hesitant to buy long-term bonds given uncertainty over the outlook for the Federal Reserve. The Iran war continues to pose risks to inflation. However, investors are also uncertain because Fed Chair Kevin Warsh has ended the longstanding practice of providing markets with guidance on how the central bank is thinking about the next moves in rate policy. Tech firms have also been tapping bond markets heavily to fund data center construction, giving markets some quality debt options that are slightly juicier than U.S. government bonds. In a statement on Wednesday, the Treasury said the actions would support liquidity in a bond market that still favors U.S. Treasury bonds—an integral part of global financial markets. The benchmark S&P 500, blue-chip Dow Jones Industrial Average, and tech-focused Nasdaq Composite rose 0.5%, 0.4%, and 0.4%, respectively after the plan was announced.

