(Bloomberg) -- The US government purchased less longer-dated debt than investors anticipated in Treasury Secretary Scott Bessent's first expanded buyback operation, intensifying a selloff that pushed borrowing costs to multiyear highs.
The Treasury Department on Thursday purchased $5.19 billion of debt maturing in 10 to 20 years, shy of the $6 billion maximum amount it previously announced. Benchmark 10-year yields extended their rise after the operation to 4.95%, their highest since 2023.
Investors offered $10.5 billion of debt to the Treasury at the operation. While the department isn't obliged to buy the maximum amount, it's only the third time officials opted against doing so for buybacks targeting longer-dated debt. There have been 53 such operations since the program was reintroduced in 2024.
"This signals that Treasury was more selective than they usually are in the space," said Molly Brooks, a strategist at TD Securities.
Thursday's purchases were under increased scrutiny as the first since Bessent unexpectedly announced that the department would "at least double" the size of operations previously penciled in at $2 billion. That news took investors by surprise and temporarily helped long bonds rally, though they've since reversed those gains.
Investors and analysts saw the move as a reflection of the Trump administration's unease over the rise in long-term borrowing costs with weeks to go before the November congressional election. The rise in Treasury yields has sent US mortgage rates climbing to the highest level in more than a year.
But Thursday's buyback resulted in disappointment among market participants, who pushed US yields even higher after the operation. Also pressured by oil prices and a deluge of fresh issuance, yields were up eight to 13 basis points across maturities — with much of the rise seen earlier in the New York trading session. The 30-year benchmark hit levels last seen in 2007, and the two-year note yield exceeded 4.5% for the first time since 2024.
"If Treasury wants to match market expectations and fill the entire buyback amount to keep long-end rates lower, they may need to accept less competitive bids in future buyback operations," TD's Brooks said.
Read: Bessent's Bond Gains Wiped Out as Treasury Yields Jump Again
The new buybacks policy has fanned chatter of a more activist style of US debt management that contrasts with the department's long-held mantra of being "regular and predictable." The maximum size of the six remaining long-end buybacks in this fiscal quarter remains uncertain, with the Treasury only guiding that it will be "at least $4 billion."
The results of Thursday's buybacks add to the surprises as traders had expected the full $6 billion allotment to be filled. US government bonds cheapened versus interest-rate swaps, with the move at the 20-year tenor that was the focus of the operation the most pronounced.
"At least the precedent that they buy back 100% of the maximum size has been broken," Brooks said. "That could help to spread expectations around a bit."
--With assistance from Edward Bolingbroke and Alexandra Harris.
(Updates with context, charts, pricing throughout.)
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