The market is holding its breath for the Treasury Department to announce the scale of a new round of long-term U.S. Treasury buybacks. Bessent stated that this move aims to calm the "frenzy" in the bond market and is not quantitative easing (QE). He also issued a stern challenge to yen short-sellers: "I am the house now. If you want to bet against me, go ahead."
U.S. Treasury Secretary Bessent stated on Tuesday (local time) that his decision last month to expand the repurchase program for longer-dated U.S. government securities aimed to restore equilibrium to the recently overheated bond market.
Speaking at a Breitbart News event in Washington on the same day, Bessent said, "My job is to strive to push conditions back toward equilibrium." He added that while he did not believe he could alter equilibrium prices, markets would not remain in equilibrium indefinitely.
Previously, the yield on 30-year U.S. Treasury bonds had risen to its highest level since 2007. Recalling the market environment at that time, Bessent remarked, "It felt as though a frenzy was building." Drawing on his experience as a former hedge fund executive, he explained that traders engaging in speculation in financial markets often seek to accelerate momentum further.
The U.S. Treasury is expected to announce the specific size of its next operation on Wednesday (local time), which will involve repurchasing outstanding 10- to 20-year U.S. Treasury notes. Following precedent, the announcement is scheduled for 11:00 a.m. Washington time (11:00 p.m. Beijing time on Wednesday).
This will be the first time the Treasury has disclosed the size of a new operation since unexpectedly announcing an expansion of the repurchase program on August 19. At that time, the Treasury announced it would "at least double" the previously tentative $2 billion repurchase amount set just two weeks earlier, catching market participants off guard.
Bessent has consistently refused to disclose the specific amount for the repurchase announced on September 10, but his recent remarks have led to widespread market expectations that the scale will exceed $4 billion.
The significance of this operation also lies in the fact that the 10-year U.S. Treasury yield remains higher than last month's level, a rate that directly influences U.S. mortgage costs. If the repurchase size is only $4 billion, it may disappoint investors and further increase selling pressure in the world's largest bond market.
Conversely, if the Treasury announces a substantial size close to $10 billion, it could establish a new benchmark for future long-term Treasury repurchases. The next operation is scheduled in two weeks, which may also indicate that Bessent's concerns about long-term yield levels are deepening.
Morgan Stanley calculates that $10 billion is roughly the current operational ceiling for the Treasury. Lou Crandall, a senior economist at Wrightson ICAP, believes that $5 billion to $6 billion may be a more reasonable starting point.
In a report to clients, Crandall wrote that a more significant expansion "amounts to an admission that the Treasury had not fully thought through the hasty announcement on August 19." However, he also acknowledged that given the rapid shift in the Treasury's strategy in recent weeks, a larger-scale repurchase is not unreasonable.
The timing of Wednesday’s announcement has also heightened market attention: the statement is scheduled to be released just hours before the Treasury’s next issuance of 10-year U.S. notes, with the auction of 30-year bonds set for the following day.
The Treasury Department declined to comment on the forthcoming announcement.
Brendan Fagan, a macro strategist at Bloomberg, noted that dealers will digest the buyback size in real time. Operations exceeding expectations are likely to be interpreted as a stronger signal from the Treasury, potentially pressing down long-end yields in the near term. However, given that the buyback program remains limited in scale relative to the broader U.S. Treasury market, swap spreads may offer a clearer reflection of market sentiment than yields.
In the past, Treasury announcements regarding buyback operations primarily included technical details such as the CUSIP codes of eligible securities. This time, in addition to awaiting the buyback volume, the market will closely monitor whether the Treasury provides further guidance on the overall program.
Bessent denies allegations of “disguised quantitative easing”
Bessent also refuted recent claims that the sell-off in U.S. Treasuries was driven by investor concerns over the scale of U.S. borrowing.
He stated that if markets were genuinely concerned about U.S. creditworthiness, investors would be selling U.S. Treasuries and buying German bunds; however, this is not what is happening.
“If everyone were worried about U.S. creditworthiness, you would see investors selling U.S. Treasuries and buying German bunds—but the reality is quite the opposite, with us outperforming,” Bessent said.
Responding explicitly to critics who argue that the Treasury’s buyback operations amount to another form of quantitative easing, Bessent stated, “I am not engaging in quantitative easing (QE).”
He described his approach as a variant of the Federal Reserve’s earlier “Operation Twist.” Traditional Operation Twist primarily influenced financial markets by adjusting the maturity structure of asset holdings, rather than simply expanding the money supply.
Dealers had widely anticipated that the Treasury would raise funds by issuing more short-term Treasury bills with maturities of up to 12 months; another speculation was that the Treasury might reduce its cash balance.
On Tuesday, Bessent also stated that his decision to expand the repurchase program was driven by the bond market's deviation from a "fact-based" trajectory.
Speaking at an event at Southern Methodist University in Texas, he said, "I do not want them to be narrative-driven." The dominant market narrative in August, to which Bessent referred, was that "the United States would be unable to repay its debt. This is absurd, yet it became the prevailing narrative."
However, this sudden announcement of expansion, outside the Treasury's quarterly financing plan, has sparked market discussion about changes in U.S. debt management practices.
For a long time, the U.S. Treasury has emphasized that debt management should remain "regular and predictable." Now, Bessent's proactive expansion of the repurchase program amid soaring long-term bond yields is viewed by the market as a more assertive form of intervention.
Following the announcement on August 19, the yield on 30-year U.S. Treasury bonds briefly retreated from its highest level since 2007, leading to a rebound in long-term bonds. Although long-term bonds have continued to perform relatively well, interest rates across various maturities on the U.S. yield curve have risen again in recent weeks.
The factors driving up financing costs in the United States and globally have not disappeared, including the risk that central banks may tighten policy to curb inflation, as well as market concerns over fiscal deficits.
As last month's unexpected move disrupted market expectations, some investors believe that the Treasury will not provide further guidance beyond the upcoming repurchases, continuing instead to adopt a case-by-case approach.
Barclays strategists Anshul Pradhan and Demi Hu stated that the Treasury might even set the maximum scale as open-ended, namely "at least $4 billion per operation." Such an arrangement preserves flexibility but also means that the market may struggle to obtain a clear operational roadmap.
Bessent sends a message to yen short-sellers
In addition to U.S. Treasury repurchase agreements, Bessent turned his attention to the yen on Tuesday, directly challenging traders betting against the currency.
He stated that he would go all out to counter speculative short positions in the yen, asserting that he possesses information in policy decision-making that traders do not have.
Bessent said, "Whenever someone says, 'Oh, the Treasury Secretary is taking a risk'—well, that is my dream; I hold asymmetric information."
The former hedge fund executive also discussed his previous experiences with market intervention, including the joint operation with the Japanese government to buy yen on July 31.
The yen initially strengthened significantly following the intervention but subsequently gave back some of its gains over the next few trading sessions. At the time, traders pointed out that the U.S. Treasury has limited funds available for foreign exchange purchase operations.
Bessent remarked, "I am the house now, so when we intervene in the yen market, I know exactly what the Japanese side, the Bank of Japan, and Japanese policymakers will do. If you want to bet against me, go ahead."
According to Bloomberg, the Bank of Japan currently leans toward raising its benchmark interest rate by 25 basis points on September 18, a policy shift that could help strengthen the yen.