US Treasury doubles some long-dated debt buybacks to support liquidity
- The US Treasury will double the size of some longer-dated debt buyback operations to support market liquidity.
- Buybacks will increase from $2 billion to at least $4 billion per operation for maturities ranging from 10 to 30 years.
- The new operation size will take effect on September 9 and remain in place through November 4.
The United States (US) Department of the Treasury (US Treasury) announced on Wednesday that it will double the size of some of its buyback operations aimed at supporting liquidity in the longer-dated Treasury securities market.
According to a statement reported by Reuters, the Treasury will increase liquidity support buybacks for longer-dated nominal coupon securities from $2 billion to at least $4 billion per operation.
The increase applies to two maturity sectors: securities ranging from 10 to 20 years and those ranging from 20 to 30 years. The measure will take effect on September 9 and remain in place through November 4.
Buyback operations allow the Treasury to remove certain older and less-liquid securities from the market. Increasing their size is therefore aimed at improving liquidity at the long end of the yield curve, without in itself representing a change in the overall amount of US government debt.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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