Tianliang Repurchase Encountered a “Cold Market”! The US Treasury's debt purchase plan hit a wall, and the liquidity tool is likely to become “dumb.”

The Zhitong Finance App notes that at a time when policymakers are debating the Federal Reserve's interest rate policy, continued inflation, and the government's expanding financing needs, the US Treasury's expanded debt repurchase program may be facing a bottleneck.

Subadra Rajapa, head of US interest rate strategy at Société Générale, pointed out in a report on September 11 that in the first operation to raise the maximum repurchase scale to 6 billion US dollars, the Ministry of Finance only accepted 5.2 billion US dollars of securities. Investors submitted bids of $10.5 billion, and the subscription ratio (cover ratio) was about 2 times.

Rajapa said that this is the weakest bid multiple recorded since the launch of the program, far below the level of 9 to 10 times common for most of 2025.

The reason the Ministry of Finance previously raised the upper limit of operations is that market participation continues to be strong, and the number of long-term bond quotes it has received is considerable. Initial results showed that participation growth was insufficient to support a three-fold increase in the repurchase limit.

The Ministry of Finance has bought back a wider range of bonds

The composition of this operation may be more indicative of the problem than its relatively low bid multiples.

Of the 40 eligible securities, the Ministry of Finance accepted offers for 23 of them, compared to only about 3 in a previous typical operation. The buyback also included 9 securities that had never been bought through the program before.

Previous operations were highly concentrated on a small group of older 20-year US bonds. Such broad coverage may represent a deliberate strategic adjustment; it may also mean that the Ministry of Finance will have to open a larger network to get closer to its expanded goals.

The next repurchase involving 20-year to 30-year securities is scheduled to take place on September 24. Rajapa said that the operation would help determine whether the latest result was an isolated adjustment, or whether a larger repurchase required the Ministry of Finance to buy from a wider structured group of securities.

What it means for investors

For bond investors, this result raises doubts about whether the Ministry of Finance can use buybacks as a powerful and easily expandable tool to support the liquidity of the long-term debt market. If participation remains limited, the Ministry of Finance may have to accept less favorable prices, reduce the scale of operations, or adjust the size and term of its bond issuance.

These choices may affect long-term US bond yields, yield curve patterns, and the overall cost of borrowing for the economy. Mortgage interest rates, corporate financing costs, and stock valuations are all highly sensitive to changes in long-term government bond yields.

Buybacks don't necessarily reduce federal debt. The Treasury generally finances these purchases by issuing additional securities. The main purpose of the plan is to improve market liquidity and manage the composition of outstanding debt.

Pressure on 20-year bonds is increasing

Rajapa believes that when the government announces the November refinancing plan, 20-year US bonds are the type most likely to be cut in issuance volume.

Since the Treasury relaunched this term product in 2020, it has been difficult to establish a reliable investor base. Former Treasury Secretary Steven Mnuchin also proposed in 2024 that the government should consider canceling the 20-year US debt due to its relatively high financing costs.

Société Générale believes that the Ministry of Finance's buyback activity is actually illuminating the persistent weaknesses in the 20-year sector. Buying back older bonds can gradually reduce outstanding balances while preparing the market for smaller auctions in the future.

Rajapa said that if the Ministry of Finance wants to exert greater influence on long-term yields, adjusting the issuance structure may eventually prove to be more effective than expanding repurchase operations. As a result, the November refinancing announcement could be an important litmus test for whether officials are ready to cut the supply of 20-year debt.