Hailey Whitlock, Editor

When deciding to make an investment, there is always a level of risk involved. Will the stock price actually go up? What if a company you purchased a bond through defaults? What if the stock market crashes and your mutual fund significantly loses value? 

In the face of all of this uncertainty, there remains US treasury bonds. These bonds are typically considered “risk-free.” As such, when investors take on higher levels of risk (such as through equities or private bonds), investors are required to be compensated for this uncertainty. After all, why invest in an endeavor where you are highly unsure you will get your money back when there is a stable investment with the same rate of return? 

As such, treasury yields play an important role in the market as far as investing and borrowing funds. The treasury yield is often considered the floor (in most cases) for return percentages as there is low risk. However, the higher the uncertainty about the government’s ability to pay back these investments the higher the rates go – as geopolitical tensions continue to rise, so do the treasury yields required to garner investment. Despite this growing unease, treasury bonds are still considered a relatively safe investment. This means that borrowing rates are in part set by the treasury rates. For instance, if you wanted to borrow money for a car loan at 4% and the treasury rate is 4%, most investors would charge a higher interest rate than the treasury yield to compensate for additional risk. As such, high treasury bill yield rates lift the borrowing interest rates making it more expensive to borrow funds. 

This has become a problem in an incredibly tense economy; in fact, per the Guardian on Sep. 15 the treasury yields for a 10 year note reached 5.041% – the highest rate since 2007. In order to combat these increasing borrowing costs, the government has elected to enact a large scale buyback program of these securities. 

Treasury bill rates are based upon supply and demand. Decreasing the supply by purchasing many of these securities makes for fewer securities available with the same demand which can create additional competition, driving the accepted rate of return down. 

In an attempt to decrease these yields, the Treasury has decided to buy back treasury bonds for an amount up to six billion dollars, three times the previous level. Per Yahoo Finance, the Treasury Secretary Scott Bessent referred to the buyback as “successful,” noting his hope that the treasury yields will soon decline. 

Overall, the treasury buybacks of these securities seek to ensure that the interest rates for borrowers remain viable in a time where treasury yields continue to climb.