The U.S. Treasury Department is scheduled to announce the specific scale of a long-term U.S. debt repurchase operation on Wednesday. The market's focus is on whether this figure will exceed the previously given minimum of at least $4 billion, and whether the Treasury Department is prepared to more actively push down long-term interest rates.
The repurchase scale is either higher than $4 billion or...
This plan was first disclosed to the public on August 19th, with the goal of repurchasing previously issued long-term government bonds, focusing on 10-year and 20-year maturities. According to previous estimates, the scale of the operation is at least $4 billion, which is already twice the usual repurchase volume.
Many institutions believe that $4 billion is more of a starting point than an upper limit. Wrightson ICAP stated this week that the initial range discussed in the market has risen to $5 billion to $6 billion, and the possibility of a larger scale cannot be ruled out.
If the final scale reaches $6 billion, analysts consider it to be rather aggressive; if it rises to three to four times the normal level, it would mean that the Treasury Department is more noticeably slowing down the net supply of long-term government bonds.
Bessent also sent a strong signal to the foreign exchange market at the same time.
U.S. Treasury Secretary Scott Bosworth addressed foreign exchange traders at a public event this week, saying, "Now I am the market maker." The market sees this statement as a further sign of a strengthening policy stance by him in recent times.
Another parallel action he mentioned is the U.S. Treasury Department's purchase of Japanese yen in order to alleviate the pressure on Japan to sell U.S. bonds. Japan remains the largest overseas holder of U.S. government debt, with a position of about $1.1 trillion. If Japan significantly reduces its holdings, it could further drive up the yield on U.S. bonds, especially against the backdrop of the U.S. national debt exceeding $40 trillion and the continuing expansion of the fiscal deficit.
The market focuses on yield rates and subscription situations.
Since the Treasury Department announced its repurchase plan, the yield on 10-year U.S. Treasury bonds has risen by about 10 basis points, and the yield on 30-year bonds has also increased slightly. This means that, at least so far, the expectation of repurchases has not significantly depressed long-term interest rates.
BMO Capital Markets pointed out that the yield on 30-year U.S. Treasury bonds remains below 5.3%, a level that some market participants consider to be sensitive and not desirable for the Treasury Department. Some analysts also believe that the Treasury Department's recent statements have been more firm than before, which may undermine the market's ability to predict future U.S. Treasury policy.
What was announced on Wednesday was the scale of the repurchase, while the actual operation will take place on Thursday. At that time, in addition to paying attention to the purchase amount provided by the Ministry of Finance, the market will also observe the selling intentions of bondholders to assess the actual impact of this operation on liquidity and yield.
