First operation goes from $4 billion to $6 billion

U.S. Treasury Secretary Scott Bessent

The Treasury Department said it would buy back $6 billion in government debt, exceeding the amount previously announced as an effort to contain yields.

This is the first buyback operation since Treasury said last month it would at least double the size of its government-debt buybacks from $2 billion. The new figure is below the top range of what had been expected.

Under the operations, Treasury buys older, less active bonds in the open market and short term debt takes its place. Buying back less active long-term securities can at the margin raise the price of remaining bonds and lower their yield.

Many Wall Street dealers were generally expecting Treasury to announce buybacks in a range of $6 billion to $8 billion.

Last month, Treasury Secretary Scott Bessent surprised markets with the expanded buyback plan that he said was a response to the steep rise in 30-year BX:TMUBMUSD30Y Treasury yields.

The surge in yields eventually hit a 19-year high of 5.34%. Bessent said the move didn't reflect fundamentals and that traders had "bad information."

"We are trying to keep the market in equilibrium," Bessent said.

Analysts trace the sharp rise in bond yields to the aftermath of the the Federal Reserve's July meeting.

Many bond traders had expected the Fed to hike rates at that meeting after new Federal Reserve Chairman Kevin Warsh's tough talk on inflation. But the Fed did not change rates and Warsh also mentioned he might support changing how the Fed measures inflation.

Long-end yields have stabilized after Bessent's surprise announcement and also Warsh's Jackson Hole speech, where the Fed chairman pledged to maintain the current measure of inflation and signaled he might favor a rate hike as soon as this month.

With the buybacks, Treasury is a "twist" its debt by buying back longer-dated paper and funding the purchases by selling short-term Treasury bills. Bessent said.

"In effect, the program has reduced long-term U.S. debt supply and increased supply of shorter coupons, which means the program is not reducing yields in general, but it is reducing some yields at the expense of others," said Chris Low, chief economist of FHN Financial, in a note Wednesday.

Analysts say the best way for Treasury to manage long-end supply is to cut the issuance of longer-term bonds. That could happen at the Fed's next refunding announcement in early November.

The benchmark 10-year yield BX:TMUBMUSD10Y edged up to 4.81% early Wednesday, a day after it touched a new one-year high. The Treasury announcement comes ahead of a new $39 billion auction of 10-year notes.

Bessent has become an activist Treasury Secretary over the past month, and intervened to support the Japanese yen.

Adam Posen, the president of the Peterson Institute for International Economics, said Bessent's posturing was ill-advised.

Either the intervention works by weakening the dollar, which will boost domestic inflation or it doesn't and the U.S. looks impotent.

Joy Wiltermuth contributed

-Robert Schroeder -Greg Robb