Over the past several years, one of the more amusing debates gripping the market's Fed-watchers was whether the Fed's treasury buyback auctions were a form of soft QE, with this website consistently arguing that - contrary to what washed out ex-Bridgewater traders with a newsletter to sell may tell you - Treasury buybacks were just that when it comes to what matters such as market reaction, to wit:
And moments ago, Scott Bessent finally resolved the debate when, with 30Y yields at 20 year highs and threatening to blow out higher, the US Treasury shocked markets, sparked a meltdown in yields and surge in equity futures and gold when it announced at 8:30am that they will be "increasing, by at least double, the size of liquidity support buyback operations for longer-dated nominal coupon securities (the 10-year to 20-year sector and the 20-year to 30-year sector). The current maximum size of $2 billion per operation will be at least $4 billion per operation."
This change will be effective September 9, 2026 and will be in effect for the remainder of this refunding quarter (through November 4, 2026). The releases noted that the Treasury will provide more information about future buyback sizes at the next Quarterly Refunding, scheduled for November 4, 2026, in other words it has the benefit of 3 months of "NOT QE" without having to even specify its thinking.
According to the statement, "this increase in buyback operation sizes reflects Treasury’s desire to provide greater liquidity support in longer-dated nominal sectors where there is consistent strong sponsorship from market participants, as evidenced by the significant volume of high-quality offers Treasury routinely receives in longer-dated buyback operations."
Translation: Bessent panicked and the justification that there is no liquidity is just a strawman, with the Treasury now freaking out that the demand for AI paper is crowding out demand for Treasuries as we have been warning for the past several weeks, and as we predicted a week ago when looking at the blowing out Treasury skew, "Bessent will be busy.:"
It took just one week for him to show just how busy he would be.
The market reaction was instant and violent, with 30y yields down 6bps in an instant on the headlines, having been down 2bp prior, This brings Wednesday's yield decline to 8bp total
US 2s30s is 7bp flatter on the day and 10s30s 2bp flatter.
Naturally, with Bessent panicking, stock futures surged...
... but more importantly, gold is breaking out bigly....
... as the market realizes that with total US debt about to hit $40 trillion...
... it all gets much worse from here.