The $10 Billion Buyback of U.S. Treasury Bonds: Why is the Treasury Getting Involved?

Record-breaking U.S. Treasury Buyback Alarms Market Confidence

Recently, the U.S. Treasury executed the largest treasury buyback in history, amounting to as much as $10 billion in a single operation, drawing widespread attention from global financial markets. This unusual move has led investors to question—why is the Treasury intervening directly? Is it a passive response to market pressure or an attempt to bolster confidence?

U.S. Treasury Supply and Demand Imbalance Worsens, Yields Soar

Since May, U.S. Treasury yields have risen rapidly, with long-term yields surpassing 5% at one point. This reflects a deteriorating supply-demand structure: a sharp increase in Treasury supply while market purchasing power declines. So far, the total scale of U.S. Treasuries has exceeded $36 trillion, growing by $1 trillion in just half a year.

Meanwhile, international uncertainty about U.S. economic policies—especially frequent changes in tariff policies, combined with high inflation and economic weakness—intensifies investor doubts about the sustainability of U.S. Treasuries.

Credit Rating Downgrade Erodes Global Confidence

This year, Moody's downgraded the U.S. sovereign credit rating from AAA to AA1, leaving all three major rating agencies having removed its AAA status. Recent data shows that U.S. debt exceeds 123% of GDP, and the fiscal deficit rate surpasses 6%, far exceeding the 3% threshold set by the Maastricht Treaty.

Additionally, the U.S. GDP contracted by 0.3% in the first quarter, indicating that high tariff policies have significantly impacted the economy. As concerns over inflation and financial risks intensify, the market is experiencing severe volatility across stocks, bonds, and currencies.

Foreign Investors Reduce Holdings, Fed Unable to Take Over

U.S. Treasuries have long relied on foreign buyers, particularly China and Japan. In recent years, these countries have been reducing their holdings. IMF data shows that the proportion of foreign official holdings of U.S. Treasuries decreased from 45% in 2014 to 28% in 2023.

The Federal Reserve, once the largest buyer, is also unable to continue expanding its balance sheet due to its heavy load. Its reduction efforts have decreased from $60 billion per month to $25 billion. Reliance on its support by the Treasury again seems unrealistic.

Fiscal Pressure Intensifies, "Big and Beautiful" Bill Exacerbates Issues

The Trump administration's "Big and Beautiful" tax cut bill aimed to stimulate the economy, but the planned large-scale tax cuts will significantly shrink fiscal revenue, further increasing the deficit. Estimates suggest this bill will add about $2.4 trillion in debt.

Amid high interest rates, high debt, and low confidence, the Treasury's massive buyback of U.S. Treasuries is not only a response to soaring yields but also an attempt to restore market trust.

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.