Treasury Doubles Buybacks to $4B as JPMorgan Warns on Fiscal Gap

The US Treasury doubled long-dated bond buybacks to at least $4 billion per operation Wednesday, pushing the 30-year yield down 9 basis points to 5.19 percent — yet JPMorgan sees only short-term relief.

"The operation changes almost nothing in terms of the fundamentals, in particular the unchanged need to finance the tidal wave of hyperscaler debt in addition to very large government deficits," Evercore ISI analysts said in a note.

The 30-year yield fell to as low as 5.187 percent Wednesday, its largest daily drop since late June, after touching a 19-year high of 5.34 percent Tuesday. The benchmark 10-year yield declined 6 basis points to 4.65 percent, while the long-dated bond index rose 1.7 percent, the best day since February 2025. Gold futures climbed 2.8 percent to $4,552.50 an ounce as lower yields reduced the opportunity cost of holding non-yielding assets.

With total public debt crossing $40 trillion and the Treasury planning to repurchase up to $83 billion of securities through November, the question is whether debt management can offset structural supply. JPMorgan argues it cannot — unless Washington cuts the deficit, term premiums and long-end yields may keep climbing, raising mortgage and corporate borrowing costs globally.

The buyback expansion, effective September 9 through November 4, applies to the 10-year to 20-year and 20-year to 30-year sectors. The Treasury said the increase reflects its "desire to provide greater liquidity support in longer-dated nominal sectors where there is consistently strong sponsorship from market participants."

The announcement came a day after a sharp bond selloff pushed the 30-year yield to its highest level since 2007, as investors weighed the risk of an imminent escalation in the US-Israeli war with Iran and a deteriorating fiscal picture. Tuesday's scheduled $2 billion buyback of 20- and 30-year bonds had failed to stem the rise, with investors offering nearly $20 billion of bonds for repurchase.

A $3.5 Trillion Financing Gap

JPMorgan strategists argue the move treats symptoms rather than the disease. With the US near full employment and the fiscal deficit at 6 percent of GDP, what constrains long-end Treasuries is not market liquidity but the scale of government financing demand. The bank projects financing gaps exceeding $3.5 trillion across coming fiscal years, meaning long-dated supply is more likely to grow than shrink.

"Although cutting auction sizes looks more likely in our view, we do not think this will have a lasting dampening effect on long-end yields," JPMorgan strategists said. Unless Washington takes concrete steps to shrink the deficit, the impact of this move on long-end yields may prove temporary.

The timing is also notable. The announcement came just two weeks after the Treasury's previous buyback plan disclosure, an unusually fast follow-up that has fueled speculation the department may further cut long-dated issuance. Treasury Secretary Scott Bessent has repeatedly voiced concern about rising long-end yields, and this marks the second time this month he has stepped in to counter market moves — following the August 1 currency intervention with Japan to reverse the yen's slide.

Credibility at Stake

What worries JPMorgan most is the credibility of the Treasury's debt management policy. For years, the department has emphasized "regular and predictable" issuance to avoid surprising markets, a principle Bessent has publicly supported. But if the Treasury increasingly adjusts its strategy in response to market moves, investors may begin to question whether policy is shifting from rules-based to opportunistic timing.

JPMorgan warns that without genuine fiscal consolidation, expanded buybacks could be seen as lacking credibility and, over time, push term premiums and yields higher. The Treasury can adjust the structure of bond issuance, but it cannot solve the fiscal deficit through debt management operations alone.

The last time the Treasury leaned this heavily on buybacks was during the 2024 program launch under then-Secretary Janet Yellen, when the department absorbed older, less-liquid bonds to ease supply pressure. That program operated in a lower-rate environment; today's backdrop of a $40 trillion debt load and hyperscaler financing needs is structurally different.

Not all are bearish. Citi has advised clients to buy 20-year Treasury notes, arguing the buyback expansion signals clear policy intent to cap long-end yields and, combined with cooling inflation, leaves room for a strong rebound in coming months.

The next scheduled buyback of 20- and 30-year bonds is set for September 24, with a 10- to 20-year operation on September 10. The Treasury said it would publish an updated tentative schedule later.

For global markets, the stakes are high. Treasury yields are the benchmark for mortgage rates, corporate borrowing costs, and the dollar, transmitting through global bond markets to risk assets. Whether the buyback expansion delivers lasting relief depends on whether Washington can address the underlying deficit — a question no debt management operation can answer.

This article is for informational purposes only and does not constitute investment advice.