The U.S. Treasury is set to disclose the scale of its long-dated debt buyback operations, with major Wall Street institutions showing significant divergence in their forecasts. At the same time, market participants remain skeptical about whether this policy tool can effectively shore up demand in the long-end Treasury market.

Treasury Secretary Scott Bessent announced in mid-August that the long-term bond buyback program would be at least doubled. The Treasury is expected to publish the maximum size cap for this operation on Wednesday, with the actual 10-to-30-year bond repurchases set to begin on Thursday.

Morgan Stanley projects a single operation could reach as high as $10 billion, JPMorgan estimates a range of $6 billion to $8 billion, while Barclays expects a figure just above $4 billion—a wide gap among the various forecasts.

According to Wrightson ICAP calculations, raising the single-operation size to $6 billion would cut net issuance of bonds with maturities beyond 20 years by roughly 27% per quarter; if increased to $10 billion, net supply would be reduced by about 55%.

However, multiple institutions remain cautious about whether this move can meaningfully improve supply-demand dynamics in the long-end market.

Bank of America notes that the expanded buyback program has "barely brought buyers back" to the Treasury market so far. BMO Capital Markets believes that even a significantly larger repurchase scale cannot resolve the fundamental factors driving yields on 10-year and 30-year bonds higher.

On Tuesday, the 10-year Treasury yield held at elevated levels.

Persistent Long-End Selling Pressure Raises Doubts on Buyback Effectiveness

Although the Treasury is attempting to boost long-end demand through buyback operations, several institutions hold a pessimistic view on their effectiveness.

In a September 4 note, Bank of America strategists led by Mark Cabana stated that Bessent's expanded buyback plan has so far "barely brought buyers back" to the Treasury market, pointing out that recent selling stems from rekindled hawkish expectations regarding Federal Reserve policy, doubts about the policy path, and persistently weak demand for long-dated debt.

The bank believes that only a clear deterioration in economic data or a significant stock market correction would most likely drive a reversal in the market; falling oil prices could also provide some degree of support.

BMO strategists, led by Ian Lyngen, maintained a short-term bearish stance on the long end in their September 4 note, favoring a "sell the rally" approach over "buying the dip."

The firm argues that, given overall U.S. financial conditions are among the loosest seen in decades, the bond market sell-off is likely to persist unless risk assets experience a more sustained decline or corporate credit spreads widen noticeably.

Institutions Lean Toward Steepener Trades

In terms of specific trading direction, institutions generally lean toward positioning for a steeper yield curve, though they differ on duration allocation.

Bank of America favors 5-year Treasury notes, citing support from weak economic data and heavy short positioning, while also recommending a 5s/30s curve steepener trade. The bank notes that if employment and inflation data come in soft, intermediate-term Treasury yields could rise, but long-end performance may lag.

Goldman Sachs strategists, including George Cole and William Marshall, prefer 5-year and 10-year SOFR curve steepener trades in their September 4 note, with entry at 13 basis points, a target of 23 basis points, and a stop-loss at 7 basis points.

Goldman also pointed out that fundamental factors—including cyclical resilience, inflation risks, fiscal policy, and AI-related debt supply—have not changed, and persistent energy price risks limit the scope for global yields to continue falling from recent highs.

Deutsche Bank, taking a longer-term and structural perspective, leans toward positioning for higher term premia and a steeper yield curve, citing unfavorable fundamentals and the low likelihood of significant fiscal consolidation.

Fed Policy Path Remains the Key Variable

Several institutions identify the Fed's September rate decision as a core variable shaping market direction.

BMO believes the key to a September hike lies in whether the Fed's swing voters are convinced that inflation is moving back toward the 2% target, and whether August inflation data is sufficient to secure the seven votes needed for the hawkish camp to push through a 25-basis-point hike. The firm's base case remains a "hawkish hold."

Goldman Sachs argues that if the market can gain clearer visibility into the Fed's reaction function and policy uncertainty declines, term premia could fall—though this depends in part on the September rate decision and its communication.

The bank also notes that if the bond market experiences a more substantial rally, it is expected to be led by the short end, requiring a macro environment shift supportive of more accommodative policy.

Regarding Norway's sovereign wealth fund potentially reducing its U.S. Treasury holdings by approximately $75 billion due to bond portfolio rebalancing, Goldman commented that the scale is relatively small in the context of overall U.S. duration demand, and the adjustment is expected to be implemented gradually without creating a concentrated impact.