Why the US Treasury Will Start to Buy Back Its Bonds

When traders in the roughly $27 trillion US Treasury market have trouble trading, it’s a matter for far wider concern. Liquidity metrics have hit crisis levels in recent years, raising worries about underlying fragility in the functioning of a market that’s a key underpinning of the global financial system. That’s one reason why, for the first time in more than two decades, the Treasury says it will begin regularly buying back its bonds starting May 29. Its goal is to stabilize the situation and buy time for policymakers to implement more permanent solutions.

Measures of liquidity in the Treasury market — of how easy or difficult it is to carry out trades — are still near the worst levels since the market mayhem at the onset of the pandemic. The Bloomberg US Government Securities Liquidity Index, a metric that rises as market conditions get tighter, remains near the highest levels since February. That’s when traders all but abandoned expectations for a Federal Reserve interest-rate cut before July and Treasury yields soared after a report showed that inflation remains sticky in the US. Treasuries had their worst performance in seven months in April and traders who began the year positioned for multiple rate reductions by the Fed in 2024 are now pricing in just one full quarter-point cut — and some now question whether the central bank will move at all.