Goldman Sachs and Wells Fargo are casting doubt on the Treasury Department's expanded bond-buyback strategy, warning that even substantially larger purchases are unlikely to reverse the surge in long-term U.S. government yields without broader changes in inflation, economic growth, Federal Reserve policy or federal borrowing.
The warnings come after Treasury Secretary Scott Bessent moved to more than double long-dated debt buybacks following a jump in yields to their highest levels in 19 years. The initial market response was significant but short-lived, with yields falling after the announcement before quickly rebounding as investors questioned whether Treasury purchases could fundamentally alter the forces driving the bond market.
Goldman Sachs strategists said in a note last week that the decision "to increase long-end buybacks does not address what we see as the main sources of recent long-end volatility."
"We think the buybacks themselves are unlikely to meaningfully reset rate levels even if scaled up," the Goldman strategists added.
Wells Fargo reached a similar assessment, arguing that sustainably lower yields would likely require a shift in the economic or fiscal backdrop rather than intervention by the Treasury alone. The bank identified weaker economic growth and inflation, greater clarity around Federal Reserve policy, fiscal consolidation or reduced investment-grade corporate issuance as potential catalysts.
"From here we think another catalyst is needed to move long-end yields lower," Wells Fargo strategists said. Such catalysts could include "a slowdown in growth and inflation, less uncertainty around Fed balance sheet and rate policy, fiscal consolidation or a slowdown in IG issuance."
The skepticism is emerging as Treasury officials potentially consider another source of financial firepower. CNBC reported Monday that the department could draw on its Treasury General Account, or TGA, as it expands bond repurchases and attempts to influence conditions at the long end of the yield curve.
Bessent has built the TGA to nearly $1 trillion, potentially giving Treasury a substantial pool of cash if officials decide to use it. The government hasn't said how much, if any, of the account would be deployed for the strategy, and officials haven't indicated whether such a move is imminent, according to the report.
Using the TGA could change investors' perception of how aggressively Treasury can operate in the market. It wouldn't, however, resolve the fundamental concern identified by Goldman Sachs and Wells Fargo: Investors are demanding higher yields for reasons that extend beyond market liquidity.
One of those pressures is the federal government's rapidly expanding debt burden. U.S. national debt recently crossed $40 trillion, increasing the amount of securities Washington must place with investors at a time when the traditional buyer base for Treasurys is undergoing a significant shift.
Foreign official institutions-including central banks, finance ministries and sovereign-wealth funds-have historically provided a deep and relatively dependable source of demand for U.S. government debt. Their share of the market, however, has fallen substantially over the past two decades.
Foreign official institutions now own about 12% of outstanding U.S. Treasury securities, according to a recent Axios analysis. That compares with roughly 40% during and in the years following the 2008 financial crisis.
