Morgan Stanley: US Treasury Doubles Long-Term Treasury Buyback Size, Signal Value Outweighs Substance

According to Chaoxiang Research, Morgan Stanley's August 20 research report noted that the US Treasury has increased the size of its liquidity support repurchase operations for the 10-20 year and 20-30 year tenors from $2 billion per operation to at least $4 billion, effective September 9. This marks the first adjustment to repurchase size outside the quarterly refunding window since the program's launch in May 2024. The two tenors combined add $1.6 billion in notional amount, corresponding to approximately $19.3 million in DV01 (price change per 1 basis point move in rates), with risk impact roughly twice that of the November 2023 "supply surprise."\nMorgan Stanley believes the Treasury's early expansion of buybacks outside the quarterly refunding window is intended to signal to the market that it is closely monitoring long-end rate dynamics, buying time ahead of the November refunding window. The recent rise in 10-year Treasury yields and curve steepening primarily reflects market repricing of energy prices and central bank policy paths, rather than deficit or supply concerns. Morgan Stanley maintains its recommendation for steepener trades in the 7-year versus 30-year Treasury yield curve, with a target spread of 100 basis points (currently around 71 basis points). On the FX front, gold and the Swiss franc posted their highest joint volatility of the year on August 19; should the dollar policy narrative return, EUR/USD could rise toward 1.2150.\n\n[TechFlow]