Citi Getting long 20y after today’s buyback announcement Aug 19

19 Aug 2026 11:58:22 ET │ 10 pages

US Rates Strategy Getting long 20y after today’s buyback announcement CITI'S TAKE n Jason Williams AC Today Treasury announced long-end buybacks (10y-20y and 20y-30y) would be increased to “at least” $4bn, from $2bn, per operation. For the rest of this quarter, this implies an increase in buybacks of at least $14bn. In our view, this action is to control long-end yields and was not for market Alejandra Vazquez Plata AC functioning purposes. This implies Treasury is unlikely to grow coupon auction sizes during the remainder of the Trump administration, at least beyond the 7y point. More importantly, this sets Treasury up to reduce 20y and/or 30y supply at the November refunding (if not earlier). We get long the Mike Chang AC 20y bond outright. Today’s action, combined with cooling inflation, sets the stage for a strong rally in the months ahead.

See Appendix A-1 for Analyst Certification, Important Disclosures and Research Analyst Affiliations.

US Rates Strategy 19 August 2026 Citi Research

Getting long 20y after today’s buyback announcement

Treasury is growing long-end buybacks This morning, Treasury announced changes to long-end buybacks, specifically the 10y-20y and 20y-30y operations, would be increased to “at least” $4bn, from $2bn, per operation. Currently Treasury runs eight long-end buybacks a quarter, and announce a tentative schedule at the refunding meeting (Figure 1). Treasury stated that the change would be “in effect for the remainder of this refunding quarter (through November 4, 2026)”. This implies roughly $14bn of additional buybacks in this timeframe as one long-end buyback already occurred yesterday. On a quarterly basis, Treasury would take down an additional 14% of 20y and 30y gross supply per quarter, assuming Treasury keeps these buyback sizes static going forward. Operationally, Treasury treats buybacks as any other type of funding need, which implies T-bill supply would be increased to pay for these operations (assuming Treasury keeps their TGA target unchanged).

In our view, Treasury increased these operations to limit the long-end selloff. This was not done for market functioning purposes, by our estimates. Treasury stated the increase was done to “provide greater liquidity support in longer-dated nominal sectors” (Figure 2). However, these operations have been highly utilized by end- users for some time and there are currently very few off-the-run dislocations. Indeed, last week’s 30y auction was one of the best August refunding auctions, which are typically the weakest of the year. Since 2009, the 30y auction in August tailed around 81% of the time with an average tail of 1.43bp. This auction had only a small tail of 0.4bp. The timing of this action, only two weeks after the refunding announcement, implies Treasury is sensitive to the outright level of long-end yields.

Figure 1. Treasury increased long-end buybacks this Figure 2. Treasury increased long-end buybacks this morning to “at least” $4bn/operation morning to “at least” $4bn/operation Liquidity Support Operations, $bn Current buyback schedule New buyback schedule Gross 40 Liquidity support (10y-30y), $bn Offered amount Number Buckets Total size Total size Coupon Max op size of ops Size per op Size per op 35 per quarter per quarter Supply 1m to 2y to to to to to 20 4 2 8 at least 4 16 42 20 to 30 4 2 8 at least 4 14* 69 15 TIPS 1 to TIPS 10 to TOTAL *On 8/18/26, one operation at $2bn already occurred, so we factor increases for future operations. 0 6/5/24 11/25/24 5/29/25 9/18/25 12/18/25 3/5/26 6/3/26 8/11/26 © 2026 Citigroup Inc. No redistribution without Citigroup’s written permission. © 2026 Citigroup Inc. No redistribution without Citigroup’s written permission. Source: Citi Research Source: Citi Research

Getting long 20s outright Treasury’s actions should send a very strong signal to the market. We struggle to see how Treasury would ever increase long-end coupon auction sizes, beyond the 7y point, for the remainder of the Trump administration, especially if yields remain somewhat elevated. Indeed, after the last refunding we warned that Treasury’s language change was opening the door for reducing 20y…