U.S. Treasury Secretary Scott Bessent is facing congressional pressure to explain whether an expanded program to repurchase long-dated government bonds is intended to influence borrowing costs as Treasury yields reach levels not seen in more than two decades.
Senator Elizabeth Warren, the ranking Democrat on the Senate Banking Committee, asked the Treasury Department to clarify its objectives, financing plans and legal rationale for increasing buybacks of longer-maturity securities. In a letter sent Wednesday, Warren described the department’s actions as an “unprecedented and chaotic intervention” and set an Oct. 21 deadline for a response.
The inquiry arrives as the 10-year Treasury yield has climbed to its highest level since 2002 and the 30-year yield has traded near 5.7%, around a two-decade high. Those benchmarks shape borrowing costs across the U.S. economy, including mortgage rates, corporate debt and some consumer loans.
Warren asked whether Treasury is considering using federal cash balances or other tools to bring down longer-term yields, placing a routine debt-management mechanism under political scrutiny at a point when the government’s financing needs remain large.
warren questions treasury’s funding plans
The dispute follows Treasury’s Aug. 19 decision to expand the maximum size of buyback operations involving certain bonds with maturities of 10 to 30 years. The department raised the per-operation cap to $6 billion from $2 billion, two weeks after issuing its quarterly financing plan.
That timing has drawn attention because Treasury debt management is generally designed around a “regular and predictable” issuance framework. Abrupt changes can lead traders to ask whether policymakers are responding to market conditions rather than following a pre-announced financing strategy.
Treasury conducted its first operation under the larger limit in September, purchasing $6 billion of eligible securities. Subsequent operations have attracted less participation than the new caps might imply. In several recent buybacks, Treasury accepted roughly half of the bonds submitted by dealers and other market participants, leaving purchases below the stated maximum.
The lower take-up complicates the suggestion that Treasury can readily reduce the stock of older long-dated debt at the pace allowed by the program. Bondholders may be unwilling to sell securities at prices they view as unattractive, particularly when selling means realizing losses on bonds issued when rates were substantially lower.
Warren asked Treasury whether it plans to finance a faster pace of buybacks by drawing down the Treasury General Account, or TGA, the government’s principal cash account at the Federal Reserve. Reducing that balance could fund repurchases without immediately increasing bill issuance, but would also shrink the government’s liquidity buffer.
Her letter also asked whether Treasury is weighing additional tools aimed at lowering long-term yields and requested an assessment of how higher rates are affecting mortgages, auto loans and other household borrowing costs.
buybacks have not reversed the rise in yields
Treasury buybacks typically serve market-functioning and debt-management purposes. The government can repurchase older, less actively traded securities and replace them over time with newly issued benchmark bonds, potentially improving liquidity in the secondary market.
Some market indicators have suggested easier trading in older long-dated securities following the enlarged operations. The spread between long-term Treasuries and SOFR-linked swaps has narrowed, according to the account described in Warren’s letter. SOFR, or the Secured Overnight Financing Rate, is a benchmark used in interest-rate derivatives.
Yet the buybacks have not stopped long-term yields from moving higher. The 10-year yield rose again this week, while the 30-year rate remained close to 5.7%. The result weakens any immediate argument that the expanded purchases are functioning as a reliable tool for capping the market’s long-term rate expectations.
Long-dated yields reflect more than the supply of individual Treasury securities. They also incorporate expected inflation, projected Federal Reserve policy, economic growth, fiscal borrowing and the additional return traders demand for holding bonds over many years. Repurchasing a limited amount of old debt may improve trading conditions in specific issues without changing those broader forces.
Bessent has linked higher long-term borrowing costs to the Middle East war’s effect on energy prices and inflation, as well as concerns surrounding the U.S. fiscal deficit. He has also said the outlook depends on developments in the Iran conflict, energy markets, economic growth and fiscal policy.
the cost of replacing low-coupon debt
The buyback program has also revived questions about Treasury’s maturity strategy. Many older bonds eligible for repurchase were issued when interest rates were lower and therefore carry relatively small coupon payments. Because market yields have since climbed, those securities can trade below face value, allowing Treasury to buy them at a discount.
But the funding source matters. If Treasury issues more short-term bills to finance purchases of long-term bonds, it could replace low-coupon, long-duration debt with borrowing that must be refinanced more frequently at current short-term rates. That would tilt the government’s debt profile toward shorter maturities.
Using the TGA instead would postpone some near-term issuance, but it would leave Treasury with less cash to manage tax receipts, benefit payments and other federal outflows. Warren’s questions indicate concern that cash management could become intertwined with efforts to shape market rates.
The political stakes are rising alongside the government’s debt burden, which Warren’s letter placed above $40.1 trillion. Higher yields increase the cost of servicing that debt as existing securities mature and must be refinanced, while persistent fiscal deficits require continued borrowing.
Treasury’s response will determine whether the department frames the larger buybacks strictly as a liquidity and debt-management measure or provides evidence that reducing long-term yields has become part of its operational thinking. The next quarterly financing update should offer a clearer view of whether the department intends to alter bill issuance, preserve its cash balance or continue using the expanded long-bond purchase limits.
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