J.P. Morgan Warns Bessent's Bond Buyback Plan Doesn't Fix Underlying Yield Problem
The 30-year Treasury yield hit a 19-year high of 5.34% on August 18, according to Reuters, and outstanding U.S. public debt exceeded $40 trillion for the first time the following morning, per NBC News. Treasury Secretary Scott Bessent responded on August 19 by announcing it would at least double liquidity-support buybacks for bonds maturing in 10 to 30 years, raising the cap from $2 billion to at least $4 billion per operation between September 9 and November 4. Long yields initially fell nine basis points and stocks rose, but the move had unwound by Thursday.
J.P. Morgan's co-head of global fundamental research, James Sullivan, said on CNBC's "Squawk Box" that Treasury is repurchasing longer-duration bonds while issuing shorter-dated bills, comparing the approach to "paying your mortgage with your credit card." J.P. Morgan's rates team warned in client notes that investors could view the intervention as "lacking credibility" and demand a higher term premium, according to Bloomberg.
Sullivan noted the $4 billion buyback is small relative to the roughly $32 trillion Treasury market — about one dollar for every $8,000 outstanding. He pointed to mounting supply pressures: AI companies have issued $200 billion in debt this year, up 80% from a year earlier; China's Treasury holdings sit at an 18-year low; and net interest costs reached roughly $857 billion in the first nine months of fiscal 2026. Evercore ISI similarly said the operation does little to address financing needs from a "tidal wave" of hyperscaler debt on top of federal deficits, per CNN.
The 10-year Treasury traded near 4.70% and the 30-year around 5.27% by Friday, both higher than before Bessent's intervention. The 30-year fixed mortgage rate averaged 6.65% for the week ended August 20, according to Freddie Mac. J.P. Morgan data shows bond yields now exceed the S&P 500's earnings yield. The next enlarged buyback is set for September 9, ahead of the Fed's September 16 meeting.
