Skip to content

CONTRIBUTORS

Robert O. Abad

Western Asset

On August 19, the US Treasury announced that it will at least double the size of its long-term bond buybacks, from $2 billion to $4 billion per operation, between September 9 and the November Quarterly Refunding. The announcement followed a rise in the 30-year Treasury yield to roughly 5.3% and is drawing attention to how the Treasury may respond if pressure at the long end persists.

The increase focuses on Treasury (UST) securities with 10–20 years and 20–30 years remaining to maturity. The purchases involve off-the-run issues rather than current benchmark bonds, consistent with Treasury’s stated goal of improving liquidity in older, less actively traded securities. Discussions about increasing the size and frequency of the buyback operations, which have been in place since 2024, predate the recent rise in yields, so it is difficult to view the decision simply as a response to the latest market move.

The purchases remain small relative to the overall Treasury market, but yields were down approximately 9 basis points (bps) at the long end following the announcement. The reaction appeared to be about more than the purchases themselves, with investors also considering what Treasury might do if long-term yields continue to rise.

Western Asset’s investment team views the increase as more than an effort to support liquidity, seeing it as a signal that Treasury is increasingly attentive to higher long-term yields and willing to respond. The decision to increase buybacks outside the regular Quarterly Refunding process adds to that interpretation. Coming after the recent intervention in the Japanese yen, it also suggests that Treasury Secretary Scott Bessent is prepared to use the tools available to Treasury when market conditions run counter to the administration’s objectives.

Looking ahead, the team anticipates that an adjustment to long-end issuance may be the next step if demand for longer-dated Treasuries weakens further. Changes in recent Quarterly Refunding language have already pointed to greater flexibility around future issuance, and another sustained rise in long-term yields could accelerate such a shift.

None of this removes the broader concerns around large US fiscal deficits, heavy government borrowing, and inflation. Government bond yields have also been rising across several developed markets as investors reassess the compensation they require for holding longer-maturity debt. Additional UST buybacks may improve trading conditions, and changes in issuance could alter the amount of duration the market needs to absorb, but neither resolves the underlying fiscal pressures.

If yields come under renewed pressure, the Treasury’s response will be more revealing. Further increases in buybacks or changes to long-end issuance would provide stronger evidence that policymakers are responding not only to market functioning, but also to the level of yields.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal.

The allocation of assets among different strategies, asset classes and investments may not prove beneficial or produce desired results.

Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Low-rated, high-yield bonds are subject to greater price volatility, illiquidity and possibility of default.

WF: 12131958

This document is intended to be of general interest only. This document should not be construed as individual investment advice or offer or solicitation to buy, sell or hold any shares of fund. The information provided for any individual security mentioned is not a sufficient basis upon which to make an investment decision. Investments involves risks. Value of investments may go up as well as down and past performance is not an indicator or a guarantee of future performance. The investment returns are calculated on NAV to NAV basis, taking into account of reinvestments and capital gain or loss. The investment returns are denominated in stated currency, which may be a foreign currency other than USD and HKD (“other foreign currency”). US/HK dollar-based investors are therefore exposed to fluctuations in the US/HK dollar / other foreign currency exchange rate. Please refer to the offering documents for further details, including the risk factors.

The data, comments, opinions, estimates and other information contained herein may be subject to change without notice. There is no guarantee that an investment product will meet its objective and any forecasts expressed will be realized. Performance may also be affected by currency fluctuations. Reduced liquidity may have a negative impact on the price of the assets. Currency fluctuations may affect the value of overseas investments. Where an investment product invests in emerging markets, the risks can be greater than in developed markets. Where an investment product invests in derivative instruments, this entails specific risks that may increase the risk profile of the investment product. Where an investment product invests in a specific sector or geographical area, the returns may be more volatile than a more diversified investment product. Franklin Templeton accepts no liability whatsoever for any direct or indirect consequential loss arising from use of this document or any comment, opinion or estimate herein. This document may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

Any share class with “(Hedged)” in its name will attempt to hedge the currency risk between the base currency of the Fund and the currency of the share class, although there can be no guarantee that it will be successful in doing so. In some cases, investors may be subject to additional risks.

Please contact your financial advisor if you are in doubt of any information contained herein.

For UCITS funds only: In addition, a summary of investor rights is available from here. The fund(s)/ sub-fund(s) are notified for marketing in various regions under the UCITS Directive. The fund(s)/ sub-fund(s) can terminate such notifications for any share class and/or sub-fund at any time by using the process contained in Article 93a of the UCITS Directive.

For AIFMD funds only: In addition, a summary of investor rights is available from here. The fund(s)/ sub-fund(s) are notified for marketing in various regions under the AIFMD Directive. The fund(s)/ sub-fund(s) can terminate such notifications for any share class and/or sub-fund at any time by using the process contained in Article 32a of the AIFMD Directive.

For the avoidance of doubt, if you make a decision to invest, you will be buying units/shares in the fund(s)/ sub-fund(s) and will not be investing directly in the underlying assets of the fund(s)/ sub-fund(s).

This document is issued by Franklin Templeton Investments (Asia) Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong.

Unless stated otherwise, all information is as of the date stated above. Source: Franklin Templeton.

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.