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The U.S. Treasury on Wednesday said it would step in to support the market for its own bonds after the cost of long-term government borrowing shot up to the highest level in almost two decades. That rise in borrowing costs had become a problem for both the government’s finances and maybe even crypto.
The new measure doesn’t print money “out of thin air” and isn’t quantitative easing (QE) or yield curve control (YCC) — two of the biggest tools governments and central banks have for pumping money into markets. Both have a long track record of triggering unprecedented risk-taking across financial assets, crypto included.
Still, hard assets like bitcoin $BTC$75,582.18 and gold are rallying, and the dollar is depreciating against major currencies. $BTC has jumped past $77,000, up 23% for the week, which is the largest weekly gain since March 2023
The reason isn’t really about what the Treasury is doing. It’s about what the move is telling the market.
Here’s what was actually announced
Starting Sept. 9 and running through Nov. 4, the Treasury will buy back $4 billion or more of its own long-duration (10 to 30 years) bonds on multiple occasions, double the previous $2 billion cap.
“We’re going to increase the size of the buyback,” Treasury Secretary Scott Bessent said during an interview with CNBC. “I would note that it could be more than the 4 billion per issue.”
The bonds being repurchased are older ones and don’t trade as often, which can make them harder to buy or sell without moving the price.
The key point: Treasury is using money it already has, or money raised by selling short-term Treasury notes or bills, not creating new money.
“They are issuing short bonds to buy long bonds – this is Operation Twist 2.0. This is not a NEW, unprecedented program,” Lance Roberts, chief investment strategist for RIA Advisors and lead editor of the Real Investment Report, said.
Operation Twist was a policy deployed by the Fed in 2011, under which it bought longer-duration bonds while simultaneously selling short-term ones. That was aimed at twisting the yield curve to lower long-term yields (borrowing costs), encouraging borrowing and investment in the economy while keeping short-term rates steady. Essentially, no new money was pumped into the market.
The action announced by the Treasury on Wednesday is the same.
It’s not QE or YCC
QE happens when the Federal Reserve creates new bank reserves out of thin air and uses them to buy bonds, injecting fresh liquidity into the financial system. Only the Fed can do that.
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Strategy sits on $1.4 billion profit on bitcoin holdings as price surges
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Source: cryptonews.net