Treasury Cannot and Should Not Engineer Bond Prices

The buyback is a supply/​liquidity fix aimed at a problem that isn’t primarily about supply or liquidity. In other words, the Treasury is trying to reduce long-term rates by restricting the supply of those bonds. But their rates have been rising (prices falling) in response to the budget deficit, heavy overall government debt issuance, a rising term premium, and persistently above-target inflation. Moreover, the bond sell-off is global: Long-end yields hit multiyear highs in Germany, France, and Japan. This sell-off suggests that the United States alone cannot fix its rate problem because that problem is not unique to the US.