The U.S. Treasury's first enhanced long-dated debt repurchase operation settled on Thursday, with the maximum size tripling the previous single-operation cap, yet the "triple expansion" failed to deliver the "shock and awe" effect investors had hoped for, as the bond selloff persists.

On Thursday, the Treasury confirmed the maximum size for the day's long-dated buyback operation stood at $60 billion. After the scale was confirmed during early U.S. equity trading, Treasury prices extended their decline. During European trading hours, the benchmark 10-year yield had already broken above 4.90%, and in U.S. trading it tested 4.94% at one point, marking the highest level since October 2023 and continuing its approach toward the 5% threshold.

In fact, the market's initial reaction to this "triple expansion" had already been delivered a day earlier. When the Treasury unveiled its plan on Wednesday for a buyback of up to $60 billion on Thursday, the 10-year yield climbed above 4.85% intraday—a level not seen since November 2023.

Bloomberg noted that $60 billion remains modest relative to a Treasury market of roughly $32 trillion, and it failed to reach the "shock factor" some investors had anticipated. Deutsche Bank strategist Steven Zeng bluntly remarked that it was as if the Treasury had "created a monster that must now be continuously fed."

Why $60 billion sits at the low end of expectations

This repurchase marks the first major operation following the Treasury's sudden expansion of its long-end buyback program on August 19. At that time, the Treasury announced it would at least double the size of liquidity-support repurchases for 10- to 20-year and 20- to 30-year maturities, raising the per-operation cap from $2 billion to at least $4 billion. Subsequently, Treasury Secretary Bessent indicated that individual buyback sizes could exceed $4 billion, prompting the market to raise expectations further.

The eventual $60 billion figure, while triple the previous cap, did not reach the more aggressive levels some Wall Street institutions had envisioned. Market estimates had ranged from $7 billion to $8 billion, with Morgan Stanley and Jefferies projecting as much as $10 billion. Thus, despite nominally representing a significant expansion, $60 billion lands at the lower end of the expectation range that had been steadily ratcheted higher. Reuters also reported that investors had hoped for more aggressive action from the Treasury, with some considering sizes up to roughly $10 billion.

Rising oil prices and inflation jitters add fuel to the bond selloff

Just as the buyback size failed to surprise, the long end of the Treasury curve came under dual pressure from climbing oil prices and inflation concerns. According to Bloomberg, on Wednesday—when the Treasury announced the $60 billion repurchase plan—a sharp rise in oil prices reinforced worries about persistently high inflation, extending the upward momentum in yields. Oil remained elevated on Thursday, and the global bond rout continued.

This also underscores the gap between what the Treasury's buybacks can address and the core contradictions currently plaguing the Treasury market. Buybacks primarily target less-liquid older issues, providing banks and other institutions an outlet to sell, freeing up balance sheet capacity, and facilitating participation in new issuance. However, they cannot directly neutralize the impact of massive fiscal deficits, supply dynamics, or inflation expectations on long-term yields.

Can the program be scaled up further?

The market's next focal point is whether the Treasury will continue to expand the size of subsequent buyback operations. For now, the Treasury has not committed to maintaining the $60 billion level each time, instead stating that the remaining six nominal long-dated Treasury buybacks this fiscal quarter will reach or exceed $4 billion. This implies that $60 billion is not a fixed standard, leaving room for adjustments in upcoming operations.

Evercore ISI chief economist Krishna Guha and his team suggested that Wednesday's arrangement may indicate Bessent is accepting the reality that buybacks can only play a limited role—namely, that the Treasury cannot indefinitely prevent fundamental factors from determining long-term yields. However, an alternative expectation persists in the market: if long-term yields continue their rapid ascent, the Treasury may have little choice but to further expand buyback operations.

Neuberger Berman portfolio manager Joseph Purtell argued that, theoretically, buyback sizes could even expand to tens of billions of dollars or more, with no obvious ceiling in sight. The question remains that $60 billion has already demonstrated that relying solely on a "triple expansion" has not halted the current Treasury selloff. With the 10-year yield posting back-to-back new highs since 2023 and approaching the 5% threshold, how much more "toolbox" the Treasury can deploy—and whether larger buybacks can genuinely reshape the pricing logic of long-dated Treasuries—will remain the market's key focus going forward.