By Qudsia Bano

The US Treasury is set to more than double the size of its long-dated debt buybacks from September 9, stepping up liquidity support at the far end of the yield curve as elevated borrowing requirements, fiscal pressures and yields above 5% test investor appetite for long-duration government debt.

The Treasury announced that the maximum size of individual liquidity-support buybacks in the 10-to-20-year and 20-to-30-year nominal coupon sectors will rise from $2 billion to at least $4 billion.

The larger operations will remain in place through November 4, when the next quarterly refunding announcement is scheduled. The department said the move was intended to provide greater liquidity support in longer-dated sectors, where it continues to receive significant volumes of high-quality offers.

The expansion comes against a markedly higher long-rate environment. Official Treasury data show the 20-year yield at 5.25% and the 30-year yield at 5.24% on September 4, while the 10-year stood at 4.78%.

On the first trading day of 2026, the corresponding yields were 4.81%, 4.86% and 4.19%, respectively, illustrating the upward shift in longer-term borrowing costs so far this year.

Mustafa O. Pasha, Executive Director and Chief Investment Officer at Lakson Investments, said the decision reflected growing pressure at the longer end of the US government bond market.

“I think the decision to increase long-term Treasury buybacks is ultimately a reflection of the growing pressure at the long end of the U.S. yield curve,” he told Wealth Pakistan.

While higher oil prices and associated inflation concerns had contributed to the rise in yields, Pasha said the more fundamental challenge was fiscal.

“The more structural issue is the U.S. fiscal position. The annual deficit is heading towards $2 trillion, national debt is now around $40 trillion, and debt servicing costs are becoming an increasingly significant part of federal expenditure. That is naturally creating some nervousness among bond investors,” he said.

Official projections underline the scale of the fiscal challenge. The Congressional Budget Office in February projected a $1.9 trillion federal deficit for fiscal year 2026, equivalent to 5.8% of GDP, while debt held by the public was projected at 101% of GDP. Net interest payments alone were projected at 3.3% of GDP in 2026.

The Treasury Borrowing Advisory Committee also noted in August that Treasury-related outlays through the third quarter of FY2026 had risen by $120 billion, or 10%, mainly because of higher gross interest costs associated with increased debt levels.

Washington's financing requirements meanwhile remain substantial. The Treasury expects to borrow $739 billion in privately held net marketable debt during the July-September quarter, $68 billion more than estimated in May. It expects another $628 billion of borrowing during October-December.

Pasha said the composition of demand for US securities was also becoming increasingly important as the market relied more heavily on price-sensitive private investors.

“Historically, large surplus countries and sovereign investors have provided a relatively stable source of demand. But as official-sector demand has become less supportive, the market has increasingly had to rely on private investors,” he said.

Private investors, he added, would demand higher yields when they perceived greater fiscal or duration risk.

The latest Treasury International Capital data show the importance of private capital in cross-border flows. In June, foreign private investors made net purchases of $169.8 billion of long-term US securities, compared with $37.3 billion purchased by foreign official institutions.

Pasha described the expanded buyback programme as a liquidity backstop rather than a solution to the underlying fiscal imbalance.

“What the Treasury is effectively doing with these buybacks is stepping in as an anchor buyer at the long end of the curve. It is not necessarily solving the underlying problem, but it is providing some liquidity and stability and, importantly, giving the market some confidence,” he said.

Treasury buybacks are distinct from Federal Reserve quantitative easing. They are debt-management operations intended partly to improve trading conditions in older, less-liquid securities.

The Treasury says buybacks are not expected to significantly affect privately held net marketable borrowing because securities that are repurchased are replaced through new issuance.

For Pakistan and other frontier markets, Pasha said persistently high Treasury yields mattered because US government debt serves as a global benchmark against which other assets were priced.

“The U.S. Treasury market effectively sets the benchmark for global borrowing costs, so persistently higher U.S. yields will have implications for virtually every emerging and frontier market,” he said.

Higher US risk-free returns can increase the compensation investors seek before allocating capital to riskier markets, potentially affecting sovereign funding, corporate financing and asset valuations.

Waqas Ghani, Head of Research at JS Global, said 5%-plus long-term US Treasury yields changed the relative-return calculation for global investors.

When investors could obtain higher dollar returns from assets carrying minimal credit risk, he said, frontier markets had to compensate through cheaper valuations, stronger earnings growth or a sufficiently attractive risk premium.

Ghani said Pakistan's domestic yields do not necessarily have to move in tandem with US Treasuries because local inflation, monetary policy and currency expectations remain the dominant drivers.

The more immediate transmission to Pakistan could instead come through foreign-investor allocation, dollar funding conditions and the valuation hurdle applied to Pakistani financial assets, he said.

Pasha said the key question is whether pressure at the long end represents a temporary liquidity problem that Treasury operations could ease or a more durable repricing of fiscal and inflation risks.

“The question ultimately is whether this is simply a temporary liquidity issue or whether we are seeing the beginning of a more fundamental repricing of long-duration U.S. government debt. I would lean towards the latter,” he said.

Credit: INP-WealthPk