Moves by the U.S. to contain bond yields may be a prelude to more coordination between Japan and the United States to restore market stability, with an emphasis on both nations getting their finances in order. Treasury Secretary Scott Bessent surprised the market with a plan to double buybacks of long-dated government bonds. This, he said, would be accompanied by a plan to improve U.S. fiscal health.
The Treasury Department will purchase at least $4 billion of government bonds “per operation” from Sept. 9, up from the current $2 billion. Operations are planned quarterly and are conducted once or twice a week. Purchases are by duration, with bonds of each maturity included in an operation once or twice a month.
While the Treasury said that the aim of bigger buybacks is to provide greater liquidity to the market, the move is seen by many analysts as an effort to control long-term bond yields, which have been rising. Treasury yield has jumped by about 70 basis points since March to near 4.70%, in part due to concerns over deficits and inflation. Japan’s long-term bond yields have also marched higher.
The 10-year Japanese government bond is trading at about 2.90%, a level not seen in 30 years. Bessent has said that rising Japanese rates could spill over into the U.S. bond market. Bessent’s bold move in the bond market was widely viewed by analysts and investors as a failure, as was an earlier coordinated intervention with Japan into the currency market.
The bonds quickly retraced to earlier levels, while the yen gave up most of its gains. President Donald Trump said that Bessent acted under his own authority and was not instructed to increase buybacks. Without fundamentals improving and rates rising, efforts to prop up the markets are seen as fleeting and ineffective.
In late July, when the U.S. and Japan stepped in to support the yen in a massive coordinated intervention, Bessent said interventions send signals and that follow-up policies are needed. It’s also possible that the U.S. wants Prime Minister Sanae Takaichi to put more emphasis on fiscal discipline, some analysts said. Takaichi has a record of making pro-stimulus remarks and has repeatedly said that her administration will boost investment in crisis management and growth.
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