Stocks, bonds and gold rally after Treasury indicates it will buy more government bonds to stop yields from surging

By Joseph Adinolfi and Robert Schroeder

'The market took this as a significant intervention,' says Jill Cetina, former vice president for bank supervision at the Dallas Fed

The Treasury Department, led by Secretary Scott Bessent, said it is scaling up buybacks for longer-term debt.

Investors cheered Wednesday, sending bond yields lower and prices of stocks and gold higher, after the Treasury Department announced it would double the size of U.S. government-debt buybacks that were initiated under the previous administration.

Plans to roughly double buybacks to at least $4 billion per operation in September do not necessarily point to a watershed moment for the roughly $31 trillion Treasury market, strategists said.

While the size of the buyback is small both in absolute terms and relative to overall Treasury issuance, the positive market reaction was driven by the expectation that the Treasury will take more active measures to tamp down rising yields under Treasury Secretary Scott Bessent.

"The more important signal is that Bessent seems willing to use balance-sheet tools more aggressively when the ultra-long end starts deteriorating," said Vincent Ahn, a portfolio manager at Wisdom Fixed Income Management, in reaction to Wednesday's Treasury announcement.

The timing is also notable, coming just ahead of next week's closely watched economic symposium in Jackson Hole, Wyo., a major Federal Reserve event where the central bank chairman typically delivers public remarks.

The current Treasury buyback program began in 2024 under Janet Yellen, Bessent's predecessor as Treasury secretary. It was initially intended as a means of improving liquidity in older "off the run" Treasury securities.

Buybacks amounted to $32 billion in 2024 - a year in which the program was only live for seven months, according to figures from Guy LeBas, chief fixed-income strategist at Janney. That increased to about $78 billion in 2025. So far in 2026, the Treasury has bought back about $50 billion, LeBas said.

While that's a small portion of the overall Treasury market, the supply and demand balance in longer-term bonds has been fragile, "so small moves can matter," LeBas said.

He suspects the more important signal is that Bessent looks willing to "take aggressive action to cap yields" at a roughly 4.75% for the 10-year and 5.25% for the 30-year year, LeBas added.

"This increase in buyback operation sizes reflects Treasury's desire to provide greater liquidity support in longer-dated nominal sectors where there is consistent strong sponsorship from market participants, as evidenced by the significant volume of high-quality offers Treasury routinely receives in longer-dated buyback operations," the Treasury Department said in an announcement.

The summer increase in U.S. yields has startled investors and started to pressure stocks this week, boosting the incentive for the Trump administration to act. Recent Treasury auctions have been weaker than expected; yields on the 30-year Treasury bond BX:TMUBMUSD30Y hit their highest level since 2007 this week; and the benchmark 10-year Treasury BX:TMUBMUSD10Y yield has lingered near the highs of the past two decades.

Still, not everyone is convinced the Treasury should take steps to control bond yields.

"Treasury debt management is supposed to be regular and predictable and boring," said Jill Cetina, a former vice president for bank supervision at the Dallas Fed, who worked at the Treasury Department and is now a professor of finance at the Mays Business School at Texas A&M University. "The market took this as a significant intervention," she added.

It also was notable that the announcement came ahead of a 20-year BX:TMUBMUSD20Y auction of U.S. debt on Wednesday, which has been a big focus for investors.

"What is the limit at which we're willing to do this?" Cetina asked. She sees risks if the expectation is that buybacks will put a cap on long-dated Treasury yields, without dealing with the underlying reasons they've been climbing.

"I think many people in this country recognize that we have a need to make comprehensive fiscal policy reforms," Cetina said, adding that rising long-dated yields can help communicate with more urgency the need to get that conversation going. But buybacks might create a sense that we can defer those conversations, she added.

Mohamed El-Erian, the former CEO of investment-management company Pimco, noted in a post on X that to finance the buybacks, the Treasury will need to issue more short-term debt, which should help assuage investors' concerns about an increasing supply of long-term bonds. But he also cautioned that fundamental policy adjustments are needed, like decreasing the size of the federal budget deficit.

Bonds rallied after the Treasury outlined the plans to increase buybacks for 10-year to 30-year U.S. debt starting Sept. 9.

The Dow Jones Industrial Average DJIA and S&P 500 index SPX were trading higher in recent action, while the Nasdaq COMP was down modestly.

The price of gold (GC00) also increased, rising more than 2% and reclaiming the key level of $4,500 an ounce. Bitcoin (BTCUSD) also rallied on the announcement.

The big loser, meanwhile, was the U.S. dollar DXY, which sank against most of its rivals. The ICE U.S. Dollar Index fell by 0.8% at 98.83 in recent trading, touching its lowest level since late May.

Joy Wiltermuth and Greg Robb contributed.

-Joseph Adinolfi -Robert Schroeder

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

08-19-26 1155ET

Copyright (c) 2026 Dow Jones & Company, Inc.