SCOTT DETROW, HOST:
Next week, the U.S. Treasury plans to buy back at least double the number of 10-, 20- and 30-year government bonds it normally does. U.S. Treasury Secretary Scott Bessent says it's to help markets run smoothly, but many investors are skeptical. The Indicator's Wailin Wong and Adrian Ma explain what the Treasury's buyback program may be up to.
WAILIN WONG, BYLINE: The U.S. government sells notes and bonds called Treasurys, and the Treasury market is around $30 trillion. It is a bedrock of global financial markets, and these bonds are considered some of the safest investments out there.
ADRIAN MA, BYLINE: And lately, investors are demanding more compensation for these longer-dated Treasurys. These yields on the 10-, 20- and 30-year bonds have touched highs not seen since the early 2000s.
WONG: There are a few reasons for these high yields. One is that investors are expecting that inflation will persist. Another is that there's a lot of bonds for sale right now and not just from the U.S. government. Tech companies are selling their own bonds to raise money for their AI buildouts. When there's a lot of bonds to choose from, the government has to offer a higher rate to attract investors.
MA: Those are some of the reasons yields on Treasurys are high at the moment. The 30-year is at over 5%. This is a problem for the administration because the government's debt just hit $40 trillion. The U.S. has a huge pile of debt, and high yields on Treasurys means higher borrowing costs.
WONG: High yields can also be a problem for you and me and really anyone who wants to borrow money. Because Treasurys are considered risk-free, their yields are the base for other interest rates in the economy. Take the 30-year mortgage. The interest rate for that is based on the 10-year Treasury.
MA: So these high yields pose a dilemma for Scott Bessent. What's the Treasury secretary to do?
WONG: Well, now it is time to talk about this plan that the Treasury Department unveiled. Starting next week, it plans to at least double the size of its buyback program for longer-dated U.S. government bonds. When the Treasury Department buys back, say, 20- and 30-year bonds, it's basically acting as an eager customer. It pumps up demand for these bonds, and that causes prices to go up and yields to come down.
MA: The problem with the Treasury Department's plan is that Scott Bessent is not talking about lowering yields. He told CNBC that his department is doing this to improve liquidity for longer-dated bonds.
WONG: Right. So nothing to do with lowering yields and interest rates.
MA: That is what the Treasury secretary is saying. But the market's chilly, even hostile, reaction to this buyback announcement, could be a signal that they're not buying it.
WONG: They're not buying the buyback.
MA: They don't believe him.
WONG: (Laughter).
MA: And that is according to Eric Jacobson. He specializes in fixed income at the research firm Morningstar.
ERIC JACOBSON: So even though the Treasury has said that this activity is meant to address liquidity in the Treasury market, a lot of the rest of the world believes that it's a political decision.
MA: And he points to two big reasons why bond investors are rebelling against the Treasury. Number one, the buybacks don't tackle the underlying economic conditions, making investors nervous.
WONG: The second reason is that a lot of investors don't want the Treasury mucking around with bonds and interest rates. That role has historically belonged to the Federal Reserve. A Treasury versus Fed showdown would be bad for investor confidence and the markets, so would a Treasury versus bond market showdown.
JACOBSON: There are a lot of ways for the markets to sort of beat up on the Treasury and probably want to stay away from that if we can.
MA: Never a dull moment in the bond market, huh? Adrian Ma.
WONG: Wailin Wong. NPR News.
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