US Treasury Triples Bond Buy-Back Programme to $6 Billion to Calm Markets

The US Treasury Department announced on Wednesday its decision to buy back up to $6 billion of government debt in an effort to contain long-term borrowing costs. This initiative, which triples the size of standard operations, comes as Treasury yields have climbed in recent months, driving up borrowing expenses for consumers. These US Treasury yields maintain a close link with Gulf states, where the majority of currencies are directly pegged to the US dollar.

The Treasury Department had previously previewed this action last month after long-term yields approached two-decade highs. These spikes were fueled by concerns over rising US government debt—which recently surpassed $40 trillion—and oil-driven inflation. “There was like this fever that was building,” Treasury Secretary Scott Bessent stated during a Breitbart News event on Tuesday, explaining that the programme is designed to calm the bonds market.

Long-term yields have steadily increased since the Federal Reserve held interest rates steady in July and amid concerns that Fed Chairman Kevin Warsh failed to outline a clear path to return inflation to 2 per cent. Despite the remarks from Mr Bessent, Treasury yields climbed following Wednesday’s announcement. The benchmark 10-year Treasury note yield rose over 3 basis points to reach 4.835 per cent, while the 30-year Treasury note increased by more than 2 basis points to 5.289 per cent. Meanwhile, the two-year Treasury, closely tied to Federal Reserve policy, traded up more than two basis points at 4.423 per cent.

This upward pressure on yields coincides with escalating tensions in the Middle East, where the US and Iran have traded attacks on tankers in the Gulf. These incidents drove oil prices higher, with Brent crude surging more than $2 to cross the $100-a-barrel mark once again. The rise in US Treasury yields also forces certain Gulf states to borrow additional funds to offset lost oil revenues resulting from the closure of the Strait of Hormuz and Iranian attacks on vital energy infrastructure.

Justin Alexander, director of Khalij Economics, noted during an event at the Arab Gulf States Institute in Washington that while spreads for most Gulf sovereigns over US Treasuries have remained relatively stable during the current conflict, a prolonged war could cause these spreads to widen. “That all increases the financing cost for the region at a time when countries … like Kuwait and Qatar and Bahrain, they potentially have to borrow a large amount of money,” Mr Alexander stated during a panel session, adding that few Gulf states have issued debt since the war began. Conversely, Saudi Arabia returned to international debt markets last week to raise $3.25 billion via a two-tranche sukuk, Kuwait sold $6 billion of bonds in July, and Bahrain secured $1 billion through a bond issuance in June.

Mr Bessent has recently adopted a more activist stance in his role, which included an intervention to support the Japanese yen. He has pushed back against criticism of these measures, including remarks from his mentor and US investor, Stanley Druckenmiller. "I am the house now,” Mr Bessent declared in Texas on Tuesday. “And you can bet against me if you want.”