Did Besent Save $200 Million But Trigger Greater Risks? Wall Street Warns US Debt Costs Could Rise Higher

The US Department of the Treasury unexpectedly announced an expansion of long-term government bond buybacks. While this briefly suppressed yields and government financing costs, it has triggered concerns on Wall Street that the United States is deviating from its decades-long principle of "regular and predictable" debt management. In the long run, this could undermine the credibility of policy guidance, forcing investors to demand higher risk compensation, thereby increasing government borrowing costs.

Institutions such as JPMorgan Chase (JPM-US), Jefferies, and PGIM have warned that Treasury Secretary Besent’s surprise move this week to expand buybacks could raise the term premium on US Treasuries—the additional return investors require for bearing long-term interest rate and policy uncertainty.

Short-Term Savings at the Cost of Predictability

On Wednesday, the US Treasury announced plans to "at least double" the scale of buybacks for outstanding 10- to 30-year government bonds. However, just two weeks earlier, the Treasury had released its regular quarterly financing strategy without previewing this major adjustment.

Thomas Simons, Jefferies’ chief US economist, said the sudden change in communication strategy reduced the overall credibility of Treasury guidance and broke the long-standing "regular and predictable" principle.

This principle has been a cornerstone of US debt management since the 1970s. The core idea is to avoid surprising investors, as maintaining a stable and transparent issuance system typically lowers long-term financing costs more effectively than opportunistically adjusting strategies based on market conditions.

While the Treasury framed the expanded buyback as a technical measure to provide "additional liquidity support," Wall Street widely interpreted it as Besent’s attempt to suppress long-term yields. Following the announcement, the yield on 30-year US Treasuries briefly dropped 9 basis points to 5.19%, enabling the subsequent 20-year bond auction to achieve lower financing costs.

Greg Peters, co-chief investment officer at PGIM, estimated the buyback news saved the US government approximately $200 million in that auction, calling it a "good deal" for Besent. However, he also warned that if the Treasury changes buyback arrangements to pursue short-term gains, long-end yields could spiral out of control, and US Treasuries might lose the trust premium historically granted by markets.

Treating Symptoms Without Addressing Root Causes

The bond market rally driven by the buyback faded within a day. On Thursday, the 30-year Treasury yield briefly rose 7 basis points to 5.27%, temporarily erasing all prior-day declines, indicating investor skepticism about the measure’s long-term effectiveness.

A team led by Jay Barry, JPMorgan’s global interest rate strategist, pointed out that the UK’s recent sharp reduction in long-term bond issuance provided only temporary relief to markets. Similarly, the US buyback expansion may produce only fleeting effects.

Barry stated that buybacks only address the surface symptom of high yields, not the underlying cause. The US economy is near full employment, yet the government continues to run a budget deficit equivalent to about 6% of GDP. If the Treasury becomes more opportunistic and further departs from established principles, markets may deem such measures lacking in credibility, ultimately demanding higher term premiums.

However, this unexpected adjustment applies only to the Treasury buyback program, which was only recently restarted in 2024, and related communication practices are not yet as mature as auction procedures. Historically, the US Treasury abruptly halted 30-year bond issuance in 2001, drawing criticism for damaging policy predictability.

Today, total US national debt exceeds $40 trillion, heightening the importance of minimizing financing costs. A Markets Pulse survey shows around 60% of respondents believe the US debt situation will continue deteriorating until a major crisis occurs.