Billionaire investor: US Treasury buybacks hurt credibility

Billionaire investor Stanley Druckenmiller on Monday criticized the Treasury Department’s buyback expansion plan, arguing it represents an artificial attempt to interfere in the bond market .

In a Wall Street Journal opinion piece , Druckenmiller noted bond yields dipped after the Treasury Department unveiled the plan on Wednesday but rose back to their previous levels the next day. The yield on the 30-year Treasury bond is nearly 5.2 percent as of Tuesday morning, roughly one-tenth of a percentage point below last week’s peak.

“The market’s verdict was swift and correct: This wasn’t liquidity management, it was price management — and a mistake far larger than $4 billion suggests,” the investor wrote, referring to bond yields rising again Thursday.

Starting on Sept. 9, the Treasury Department will double the maximum value of longer-dated securities, specifically in the 10-to-20-year and the 20-to-30-year sectors, that it can purchase from $2 billion to $4 billion per operation. The department noted it will provide more information about future buyback sizes at its next quarterly refunding on Nov. 4.

Treasury Secretary Scott Bessent, who worked with Druckenmiller during their respective times at the Quantum Fund and Soros Fund Management, said Thursday his department could increase the maximum buyback value even further.

“We have a big tool kit, so we will see,” he told host Sara Eisen on CNBC’s “ Squawk on the Street .” “And part of it is signaling here, and to show that we believe that the yields don’t reflect the underlying fundamentals.”

But Druckenmiller argued the Treasury Department expanding its own buyback limits amounts to “procrastination” and an avoidance of the true problem for the bond market: the national debt , which surpassed $40 trillion last week.

“Suppressed long rates sugarcoat the interest-cost projections, shrink the apparent urgency, and let incumbents assure voters the debt is someone else’s problem,” Druckenmiller, the founder of Duquesne Capital, which he closed in 2010, added.

As for what the Treasury should do instead, he recommended an approach he deemed “straightforward.”

The investor wrote, “Return buybacks to their stated purpose: small, scheduled, off-the-run liquidity operations announced at quarterly refundings, never off-cycle responses to yield levels. Term out the debt honestly and pay the price the market sets.”

He added that reforming entitlements “gradually and honestly” will result in an “enormous” reward for the country.

“A credible fiscal package would do more for the long end of the curve than a buyback program 1,000 times this size,” Druckenmiller said.