US Treasury doubles bond buybacks as national debt crosses $40 trillion for the first time

The US national debt just crossed $40 trillion. Treasury Secretary Scott Bessent announced on August 19 that the department would increase its liquidity-support buybacks of longer-dated securities from $2 billion to at least $4 billion per operation, effective September 9 through November 4. The goal: soak up less actively traded long bonds and take some pressure off yields that had been screaming higher.

The yield problem nobody can buyback away

The 30-year Treasury yield had surged to approximately 5.33% before the announcement, its highest level since 2007. That’s not just a number on a Bloomberg terminal. It ripples through mortgage rates, corporate borrowing costs, and virtually every corner of the economy where someone needs to borrow money.

Markets initially responded the way the Treasury hoped. Yields dipped on the news. Then they un-dipped.

Mohamed El-Erian described the move as a “band-aid,” a characterization that stuck because it captured what many market participants were thinking. Buying back bonds addresses the symptom, not the disease.

The disease, in this case, is a federal budget deficit running at roughly $2 trillion per year, or about 6.4% of GDP. That’s the kind of deficit you’d expect during a recession or a war, not during peacetime with unemployment near historic lows. And because the government has to borrow to cover that gap, the supply of Treasury securities keeps growing, putting persistent upward pressure on yields regardless of how many buyback operations the Treasury runs.

Interest payments become a line item that rivals defense spending

Annual net interest payments on the federal debt are projected to exceed $1 trillion, with some estimates reaching as high as $1.2 trillion. To contextualize that figure: the entire US defense budget for fiscal year 2024 was around $886 billion. The government is now spending more to service its past borrowing than it spends on the world’s largest military.

The compounding nature of this problem is what makes it so difficult to address through monetary plumbing alone. Higher yields mean higher interest costs, which mean larger deficits, which mean more borrowing, which means more supply of Treasuries, which pushes yields higher. It’s a feedback loop that buyback programs can soften at the margins but cannot break.

Who’s buying American debt, and why it matters

The composition of Treasury buyers has been shifting in ways that amplify the yield pressure. Foreign central banks, once the reliable backstop of US debt markets, have been gradually reducing their holdings as a share of total outstanding Treasuries. That puts more of the burden on domestic institutions, hedge funds, and price-sensitive investors who demand higher yields to compensate for the risk of holding long-duration government bonds in an era of persistent deficits and sticky inflation.

The doubling of buyback operations can be read as an acknowledgment of this reality. By stepping in to provide liquidity for off-the-run bonds, the Treasury is trying to keep the plumbing of the bond market functioning smoothly. The buyback program appears relatively small compared to the sprawling $30 trillion marketable Treasury sector, sparking skepticism among investors regarding its effectiveness in providing sustainable yield relief.

What would actually change the trajectory is fiscal consolidation, spending cuts, revenue increases, or some combination that brings the deficit closer to a sustainable path. The recently passed tax legislation moved in the opposite direction, extending and expanding provisions that added to projected deficits.

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