The U.S. Treasury is about to make a move designed to make the bond market more resilient

By Vivien Lou Chen

The first Treasury buyback program in more than 20 years is expected to be launched soon

A long-awaited program intended to make the Treasury market more liquid and resilient is expected to get off the ground in a matter of days.

It is known as a buyback program and is scheduled to be reintroduced for the first time in more than 20 years. The U.S. Treasury has already conducted limited buyback tests this month and indicated that it will announce the date of its first regular operation as part of next Wednesday's quarterly refunding announcement.

The goal of the program is to support liquidity in the world's largest market for government securities. The U.S.'s growing debt pile is being seen by traders and strategists as one of the biggest catalysts for a prolonged period of volatility inside the $27.5 trillion Treasury market.

Read: 'Extraordinary' U.S. government debt may mean prolonged bond-market volatility

The Treasury Department has undertaken only two previous series of buybacks in the past century. The first took place during the 1920s. More recently, Treasury bought back $67.5 billion of outstanding debt via 45 operations held between March 2000 and April 2002, according to Josh Frost, assistant secretary for financial markets.

In a speech delivered last September, Frost said that reintroducing buybacks would not only help to make the Treasury market more liquid and resilient, but would also help the department achieve its debt-management objectives.

In a note on Tuesday, Barclays strategists Anshul Pradhan and Andres Mok said that they are expecting the Treasury to unveil a schedule of purchase operations shortly.

"As to when the Treasury should conduct these operations, we believe it should avoid major data releases," they said. "Dealers have noted that they expect robust participation in operations that occur in the late morning or early afternoon, with several suggesting that timing of auctions should be taken into account and conducting buybacks leading [up to] an auction would be helpful."

On Tuesday, the bond market remained relatively steady, with 2-year BX:TMUBMUSD02Y, 10-year BX:TMUBMUSD10Y and 30-year yields BX:TMUBMUSD30Y finishing slightly lower on the day.

-Vivien Lou Chen

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04-23-24 1613ET

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