U.S. Treasury expands U.S. bond buybacks with results below expectations; 10-year U.S. Treasury yield rises to 4.95%; mortgage rates surpass 7%

According to Zhitong Finance APP, the U.S. Treasury on Thursday conducted its first long-term Treasury buyback operation since Secretary Yellen announced an expanded scale, but the actual purchase amount was lower than market expectations. This disappointed investors who had hoped the Treasury would alleviate upward pressure on long-term interest rates by increasing buybacks. After the buyback results were announced, U.S. Treasuries sold off further, with the 10-year Treasury yield rising to 4.95%, the highest level since 2023. The turmoil in the bond market is quickly spreading to the U.S. real estate market, as the 30-year fixed mortgage rate broke above 7% on Thursday, reaching 7.07%, marking the first time since May 2025 that this threshold has been crossed.

The U.S. Treasury bought $519 million worth of Treasuries with maturities between 10 and 20 years on Thursday, below the previously announced maximum buyback size of $600 million. Investors submitted a total of about $1.05 billion in bonds for this operation.

Although the Treasury is not obligated to buy the maximum amount at each buyback, the actual buyback size this time still disappointed the market. Since the U.S. Treasury restarted its buyback program in 2024, there have been 53 operations targeting long-term bonds, and this is only the third time that the pre-set maximum amount was not reached.

TD Securities strategist Molly Brooks noted that this suggests the Treasury was “pickier than usual” in this long-term bond buyback.

This operation drew special attention as it was the first actual move after Yellen’s earlier surprise announcement of an expanded long-term Treasury buyback scale. Yellen previously stated that the Treasury would at least double the originally planned single buyback scale of about $200 million, raising this round’s 10-20 year Treasury buyback cap to $600 million.

This news initially surprised investors and briefly pushed long-term Treasury prices higher, but those gains have since been erased. As traders had widely expected the Treasury to buy the full $600 million, the final actual buyback of only $519 million broke previous expectations.

Brooks commented that if the U.S. Treasury wants to meet market expectations and help suppress long-term rates by filling out the buyback amount, future buybacks might need to accept less competitive bids.

Treasury Yields Approach 5%, Mortgage Rates Break 7%

After the Treasury buyback results were released, Treasury yields continued to climb. The 10-year Treasury yield rose to 4.95%, a new high since 2023, moving closer to the 5% mark. On Thursday, yields across various Treasury maturities rose about 8 to 13 basis points, mainly driven by rising oil prices and a surge of new bond issuance.

The 30-year Treasury yield touched its highest level since 2007, while the two-year yield broke past 4.5% for the first time since 2024. U.S. Treasuries further weakened relative to interest rate swaps, with the 20-year bond, the focus of this buyback, underperforming significantly.

The persistent sell-off in the bond market is also starting to push up housing finance costs for U.S. residents. According to Mortgage News Daily, the average rate on the most common 30-year fixed-rate mortgage rose to 7.07% on Thursday, up 10 basis points from Wednesday—a break above 7% for the first time since May 2025.

U.S. mortgage rates are typically closely linked to the movement of 10-year Treasury yields. As long-term yields climbed again on Thursday, home loan rates broke through key thresholds as well.

Matthew Graham, chief operating officer at Mortgage News Daily, said, “It’s been a tough few days for the bond market. Yesterday’s focus was on Yellen and the market’s response to the Treasury buyback announcement, while today it’s the overnight surge in oil prices and the muted market reaction to the PPI data.”

U.S. August PPI rose 0.4% month-on-month, in line with Dow Jones survey expectations, but this number was not enough to stem the selling pressure in the bond market. Meanwhile, U.S.-Iran tensions pushed oil prices higher, fueling market concerns about future inflation and sustained high interest rates.

Mortgage Rates Surge Since U.S.-Iran Conflict, Homebuying Costs Rise Significantly

U.S. mortgage rates have climbed steadily since the outbreak of the U.S.-Iran conflict. On the day before the conflict began, the 30-year fixed mortgage rate was as low as 5.99%, but has now risen to 7.07%—an increase of more than a percentage point.

This change has significantly increased the real burden for U.S. homebuyers. For example, taking a $430,000 home (near the U.S. median home price), if the buyer pays 20% down and uses a 30-year fixed-rate mortgage, their monthly principal and interest payment would rise by $244 compared to the end of February at current interest rate levels.

As housing finance costs surge, the U.S. real estate market itself is already showing weakness. Data released Thursday showed existing home sales in August declined 2.0% month-on-month, with seasonally adjusted annualized sales falling to 3.98 million units—the lowest since June 2025. Meanwhile, despite rising housing inventory, home prices have continued to climb.

As a result, U.S. homebuilder stocks broadly declined on Thursday. The combination of high mortgage rates, falling transaction volumes, and persistent home price levels is further intensifying affordability pressures in the U.S. housing market.

Buyback Expansion Underwhelms; Market Focus Turns to Treasury Debt Management Shift

As November’s Congressional elections approach, the sustained rise in long-term financing costs is becoming more sensitive. Previously, investors and analysts widely believed Yellen’s expansion of long-term Treasury buybacks reflected the Trump administration’s concern over the persistent increase in long-term borrowing costs. Now, with the 10-year yield nearing 5% and the 30-year mortgage rate back above 7%, the impact of high rates on the U.S. economy—especially the real estate sector—is becoming more apparent.

At the same time, Yellen’s adjustments to the Treasury’s buyback policy have triggered market discussions about whether the U.S. Treasury is adopting a more proactive approach to debt management. The Treasury has long emphasized that debt management should be “regular and predictable,” but the recent abrupt expansion of long-term buybacks has prompted investors to reevaluate this traditional framework.

As of now, the maximum size for each of the remaining six long-term Treasury buybacks this fiscal quarter remains unclear. The Treasury has only stated that each operation will be “at least $400 million,” meaning there is still significant flexibility in the actual size of future buybacks.

Brooks pointed out that this operation at least broke the market’s previous expectation that “the Treasury usually buys the maximum set in advance,” and that going forward, investor estimates for actual buyback sizes may become more divergent.