US borrowing costs hit three-year high as $6bn bond intervention backfires

American government borrowing costs have risen to a three-year high after a $6bn (£4.4bn) bond market intervention disappointed investors.

The US treasury said on Wednesday it would buy back $6bn in government debt as Scott Bessent, the treasury secretary, tries to suppress high bond yields.

However, the intervention underwhelmed investors and yields rose after the announcement. The interest rate on benchmark 10-year Treasuries rose to 4.85pc, the highest level since late 2023. The cost to borrow over 20 and 30 years also rose sharply.

The jump is a setback for Mr Bessent and Donald Trump, who have both sought to combat a sharp recent rise in US borrowing costs that has put pressure on the White House's economic plans.

It will also likely raise concerns that the global bond sell-off seen last week could reignite.

The dollar has since fallen to a seven-month low against the yen after Mr Bessent challenged traders to bet against his resolve to prop up the Japanese currency.

Ryan Sweet, the chief economist at Oxford Economics, said Washington would struggle to bring down borrowing costs through buybacks.

Mr Sweet said: "There's the old adage that you can't push the bond market around. I think that's true because the bond market is just huge. [$6bn] is a big number, but not relative to the size of the US bond market."

It is the first buyback operation since the treasury committed in August to double its regular purchases of longer-term government bonds from $2bn to $4bn.

Mr Bessent unexpectedly announced the expanded buyback plan last month in response to the steep rise in long-term borrowing costs. He said that he was trying to "keep the market in equilibrium".

Mr Sweet said: "We got to give it a little bit of time to see ... after you get that knee-jerk reaction, what the impact on long-term rates is. But the Treasury's actions are fairly small."

Wall Street dealers had expected the treasury to go further and announce the buybacks in a range of $6bn to $8bn.

Under the operations, the treasury buys older, less actively traded bonds in the market and replaces them with shorter-term debt.

Buying long-term Treasuries can raise the price of remaining bonds and lower their yield.

Higher Treasury yields have been blamed on concerns about the path of the US national debt, which recently passed the $40tn mark. Markets' jitters over energy-driven inflation linked to the Iran war have also pushed borrowing costs higher as investors bet on interest rate rises.

Brent crude oil topped $100 a barrel on Wednesday after reports of bombing targeting key Iranian energy infrastructure late on Tuesday.

Analysts have also traced the sharp rise in bond yields to the aftermath of the Federal Reserve's July meeting. Fed officials raised the potential need for higher rates unless inflation calms, according to meeting minutes.

Government borrowing costs around the world – from Japan to the UK – have surged to multi-decade highs in recent weeks, putting pressure on public finances.

Mr Sweet warned rising yields would deal another blow to America's ailing property market.

He said: "Rising 10-year Treasury yields, all else being equal, means higher mortgage rates, and we have an affordability issue on the housing front."

Higher borrowing costs "flow through pretty quickly into the housing market, and the housing market in the US is essentially already ice cold. So this has the potential to keep it frozen for a little bit longer", Mr Sweet added.

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