The US Department of the Treasury has announced it is increasing its “liquidity support” for longer-dated debt securities. The Treasury will now buy 10yr, 20yr, and 30-year long-end fixed-rate government securities, increasing by 2X, from $2 billion per operation to $4 billion. The announcement pushed markets higher and yields lower as the cost of money fell.
The change is effective as of September 9th and is expected to remain in effect through the quarter.
Treasury said the move indicated a desire to “provide greater liquidity support in longer-dated nominal sectors where there is consistent strong sponsorship from market participants, as evidenced by the significant volume of high-quality offers Treasury routinely receives in longer-dated buyback operations.”
The Treasury’s decision to buy these bonds is not deemed quantitative easing, which is the domain of the Fed. The strategy should not boost the balance sheet, as Treasury uses existing cash or offsets with other issuances.
The announcement propelled the 10-year bond lower by around 6 basis points. The 10-year is important because the mortgage sector is tied to it, so lower mortgages can improve home purchases. Mortgage rates have remained stubbornly high. July pending home sales fell 2.3%, the lowest since January. This metric was expected to remain flat or up slightly. Declines occurred in all four geographic regions.