US Long-term Interest Rates Drop, Impact of Secretary Besant's Buyback Expansion

Scott Besant, the U.S. Secretary of the Treasury, is moving the bond market with his plan to expand the long-term Treasury buyback program. Secretary Besant announced that he would at least double the long-term Treasury buybacks, resulting in the spread between 30-year Treasuries and interest rate swaps narrowing to its tightest since February. The benchmark Treasury yield also fell immediately after the announcement. CNBC reported that the Treasury Department could utilize the Treasury General Account (TGA) as a source for long-term bond purchases. This news, coupled with falling international oil prices, provided additional upward momentum to the bond market. Jason Williams from Citi assessed that the Treasury's purchases provide a safety net for long-term bonds. In the options market, demand for call options on long-term U.S. Treasury futures has increased over the past week. The 30-year swap spread has narrowed to its tightest since February, and the 10-year spread has also reduced to about 39 basis points. However, the yield on the U.S. 10-year Treasury remains high at 4.7%, while the 30-year yield is at 5.2%. Libby Cantrell, head of public policy at PIMCO, pointed out that the high structural fiscal deficit and large Treasury supply are problematic. The 'Besant Put' may suppress long-term interest rates in the short term, but the resolution of the fiscal deficit issue remains uncertain.