If the Treasury buys back the debt, it is extinguishing the debt? On one side, they’ll be issuing debt. And then they’ll use the same funds to buy back debt? This seems like a duration play. Sell short term buy long term.
If the Treasury has an interest rate peg, I expect that peg to fail in due time. It’s a compressed spring. When yields break higher it will be an explosive move. If I owned Treasury debt, I would be selling everything to them.
When the U.S. Treasury conducts a buyback of off-the-run securities (older, less liquid bonds), it is essentially exchanging one form of debt for another. The Treasury buys back those older bonds and typically issues new, more liquid debt—often on-the-run securities—to finance the buybacks. This is a refinancing, not a reduction in total debt. So yes, it could sell short-term but buy long-term. It effectively buys time until the Fed cuts, at which time yields should theoretically fall.
Thanks Stephen. Theoretically, Treasury can sell $10 billion in on-the-run securities to buy back less liquid off-the-run securities forever. The looming debt ceiling hike will be a problem or if interest rates rise through 4.5% on the 10 year yield.
This is a powerful breakdown. Bessent’s move is more than just financial mechanics—it’s a political and psychological statement. Do you think these Treasury buybacks signal the start of a new policy norm where fiscal authorities play a more active role in market stabilization, especially during Fed inertia—or is this just a temporary power vacuum that vanishes once Powell acts?
is this to continue? Is there any limit to this???
I'm just reading what my former bond market colleague in Singapore sent me this morning. https://treasurydirect.gov/instit/annceresult/press/preanre/2025/BBR_20250603174000.pdf
If the Treasury buys back the debt, it is extinguishing the debt? On one side, they’ll be issuing debt. And then they’ll use the same funds to buy back debt? This seems like a duration play. Sell short term buy long term.
If the Treasury has an interest rate peg, I expect that peg to fail in due time. It’s a compressed spring. When yields break higher it will be an explosive move. If I owned Treasury debt, I would be selling everything to them.
When the U.S. Treasury conducts a buyback of off-the-run securities (older, less liquid bonds), it is essentially exchanging one form of debt for another. The Treasury buys back those older bonds and typically issues new, more liquid debt—often on-the-run securities—to finance the buybacks. This is a refinancing, not a reduction in total debt. So yes, it could sell short-term but buy long-term. It effectively buys time until the Fed cuts, at which time yields should theoretically fall.
Thanks Stephen. Theoretically, Treasury can sell $10 billion in on-the-run securities to buy back less liquid off-the-run securities forever. The looming debt ceiling hike will be a problem or if interest rates rise through 4.5% on the 10 year yield.
This is a powerful breakdown. Bessent’s move is more than just financial mechanics—it’s a political and psychological statement. Do you think these Treasury buybacks signal the start of a new policy norm where fiscal authorities play a more active role in market stabilization, especially during Fed inertia—or is this just a temporary power vacuum that vanishes once Powell acts?