MS Our Views After Treasury Announced Larger Buybacks

M August 20, 2026 01:49 AM GMT

Global Macro Strategy | North America Morgan Stanley & Co. LLC Idea

Martin W Tobias, CFA Strategist

Strategist We expect the UST curve to resume steepening after investors Eli P Carter Strategist digest the possibility and markets price in a higher probability of

further increases in buybacks and/or a reduction in long end issuance. We think the fundamental drivers of a steeper curve and, eventually, lower yields remain firm.

Key Takeaways We think additional UST liquidity buybacks and associated signaling buy time for the fundamental drivers of a steeper yield curve and lower rates to play out.

We think Treasury funds these incrementally larger buybacks with T-bill issuance. Investors should not conflate this with a Maturity Extension Program or QE.

We suggest investors maintain UST 7s30s steepeners and SFRM7M8 curve steepeners – the rationales for which don't rely on higher long-term yields.

We suggest investors exit long USU6 basis positions as expanded Treasury buybacks reduce the tail risk of significant duration extension in the US basket.

We think investor perception of this surprise action revived a weak-USD policy premium and point to further USD downside especially vs. CHF and AUD.

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US Rates Strategy United States | Treasury buybacks: build back bigger

Martin Tobias, CFA, CMT MORGAN STANLEY & CO. LLC Matthew Hornbach, CMT Eli Carter

Treasury boosts long-end buybacks

Treasury announced plans to increase the sizes of its long-end (10Y-20Y and 20Y-30Y sectors) nominal coupon liquidity support buyback operations from $2bn per operation to at least $4bn per operation, effective September 9.

• Increasing long-end buybacks was an option we highlighted before refunding, to address the recent Treasury market sell-off (see, August UST Refunding Preview).

Liquidity support buybacks are treated as an ordinary cash outflow from the TGA and we think these incrementally larger buybacks will be funded with more bill issuance.

• With that said, Treasury has sought input this year from TBAC and primary dealers on ways to utilize its “excess” Treasury General Account (TGA) cash.

° We continue to believe funding liquidity support buybacks with “excess” TGA cash would be a much better use than investing in the repo market.

As shown in Exhibit 6 , in regard to the incremental duration extraction from the expanded buybacks, we think the signaling effect with respect to how Treasury views long-end supply dynamics is more meaningful.

• In conducting a regular and predictable buyback program since May 2024, Treasury has not adjusted buyback mechanics, outside of quarterly refunding.

• The last change to the buyback program was announced at August 2025 quarterly refunding, after a few quarters of evaluation and feedback.

In adjusting nominal long-end liquidity support buyback sizes just two weeks after releasing a tentative schedule for the quarter, we interpret this is as a clear signal Treasury is very attune to current dynamics in the long-end of the Treasury curve.