A $70 billion auction of five-year notes needed a concession to clear. On Thursday the Treasury will try to buy back up to $6 billion of its longest bonds, after its last attempt fell short of target.
The Treasury Department spent Wednesday on both sides of its own market. It sold $70 billion of five-year notes to investors who demanded a steep price, and it announced plans to buy back up to $6 billion of its longest-dated debt the next day.
The five-year notes sold at a yield of 5.033%, the highest at a five-year auction since June 2006, when the high yield was 5.203%. Demand was soft. The bid-to-cover ratio, a measure of how many bids arrive for each dollar offered, came in at 2.21, below the six-month average of 2.33. The auction also cleared about three basis points above the 5.002% yield at which the notes were trading just before the sale, a gap traders call a tail. Yields across the curve pushed to fresh highs for the day shortly after the result was released at 1 p.m.
Earlier, the Treasury said it would purchase a maximum of $6 billion of bonds maturing in 20 to 30 years at a buyback operation on Thursday. That matches the target of its last longer-dated operation, held after a surprise Aug. 19 announcement that the department would "at least double" the size of such purchases. Investors had originally been told to expect about $2 billion.
The last attempt did not fill. At that operation, the Treasury set a $6 billion ceiling for bonds maturing in 10 to 20 years and bought only about $5.2 billion. Investors offered $10.5 billion of securities, but officials said there were too few competitive offers at prevailing prices to reach the maximum. Bonds had also sold off after that size was announced on Sept. 9, since some market participants had expected more.
Wednesday's announcement landed in a weak market. The 30-year yield rose above 5.38% after the buyback size was released, close to the highest levels since 2007.
Treasury Secretary Scott Bessent has defended the program as a response to markets he said were "moving away" from equilibrium prices. He has pointed out that the 30-year yield rose only about a basis point between the Aug. 19 announcement and Sept. 21.
Not everyone accepts that framing. The Institute of International Finance, one of the world's largest financial-industry associations, warned on Wednesday that purchases of securities in the secondary market "may provide temporary relief, but they cannot resolve the structural drivers of rising debt."
The two operations test different things. The auction measures how much investors will pay to take new government debt at the five-year point. The buyback measures how many holders of old long bonds are willing to sell them back at current prices. On Wednesday the first answer was a higher yield than any five-year sale in two decades.
Thursday's result gives the second answer. A fully subscribed $6 billion operation would suggest holders are ready to part with long bonds at these levels. Another shortfall would repeat the pattern from earlier this month, when the Treasury offered to buy more than sellers were willing to deliver.