Treasury Isn’t Doing QE or YCC, but Bitcoin Is Still Surging. Here’s Why

• The surge in hard assets is not necessarily being driven by the Treasury’s action itself, but by what the move suggests about policymakers’ concerns and the market’s future direction.
• The U.S. Treasury announced Wednesday that it would step in to support the market for long-term government bonds after borrowing costs climbed to their highest level in nearly two decades. Rising yields had become a growing concern for government finances and potentially for risk assets such as crypto.
• The new policy does not create money from scratch and does not amount to quantitative easing (QE) or yield curve control (YCC), two powerful tools that can inject liquidity into financial markets and encourage greater risk-taking.
• Even so, bitcoin and gold have rallied, while the U.S. dollar has weakened against major currencies. Bitcoin climbed above $77,000 and was up about 23% for the week, its strongest weekly performance since March 2023, according to CoinDesk data.
• The important factor is not simply the Treasury’s buyback program, but the message it sends to investors.

What the Treasury Actually Announced

• Beginning Sept. 9 and continuing through Nov. 4, the Treasury plans to repurchase at least $4 billion of long-dated government bonds with maturities of 10 to 30 years during multiple operations. That doubles the previous $2 billion limit.
• Treasury Secretary Scott Bessent said the size of individual operations could ultimately exceed $4 billion.
• The securities being bought are older Treasury bonds that tend to trade less frequently, making them more difficult to transact without affecting their prices.
• Crucially, the Treasury is not creating new money to finance the purchases. It will use existing funds or proceeds from issuing shorter-term Treasury bills and notes.
• RIA Advisors chief investment strategist Lance Roberts described the approach as similar to a modern version of the Federal Reserve’s 2011 “Operation Twist,” in which the central bank purchased longer-term bonds while selling shorter-dated securities.
• Operation Twist was designed to push down long-term yields and reduce borrowing costs without injecting new money into the financial system. The Treasury’s latest strategy follows a similar structure.

Why It Isn’t QE or YCC

• Quantitative easing occurs when the Federal Reserve creates new bank reserves and uses them to purchase bonds, injecting additional liquidity into the financial system. That power belongs to the central bank, not the Treasury.
• Yield curve control takes a different approach. Under YCC, a central bank sets a target or ceiling for a particular bond yield and commits to purchasing enough securities to keep that rate within the desired range.
• The U.S. used a form of yield curve control between 1942 and 1951, while the Bank of Japan implemented explicit YCC from 2016 through 2024.
• Both QE and YCC can encourage risk-taking by easing financial conditions. The Treasury’s latest announcement is better characterized as a bond-market liquidity measure designed to address rising long-term yields.

The Signal May Matter More Than the Buybacks

• The bigger market impact may come from what the Treasury’s action signals rather than the size of the purchases themselves.
• The buybacks are relatively small compared with the overall Treasury market and net government debt issuance. Instead, the move suggests policymakers are looking for ways to contain borrowing costs without directly addressing the underlying fiscal deficit.
• That could leave long-term yields vulnerable to another move higher. The 30-year Treasury yield, for example, dropped from 5.30% to 5.18% Wednesday before rebounding to around 5.25%.
• ING analysts said the buybacks are unlikely to fundamentally change the longer-term direction of long-duration yields because the program represents a relatively small intervention.
• The timing is also significant. The announcement came as long-term yields were near their highest levels since 2007, highlighting policymakers’ growing concern about elevated government borrowing costs.
• Bessent said the Treasury has several tools available and suggested the buyback program also serves as a signal that policymakers believe current yields do not accurately reflect underlying economic fundamentals.
• Saxo Bank’s Ole Hansen said the announcement indicates that Treasury officials are becoming increasingly focused on market liquidity and rising long-term borrowing costs.
• Taken together, the developments suggest policymakers could face pressure to take stronger action if yields continue climbing. One potential future step could be a formal YCC program in which the Federal Reserve commits to purchasing whatever amount of bonds is necessary to keep 10-year or 30-year yields below a specified level.
• Such a policy would dramatically expand the Fed’s balance sheet and potentially inject substantial liquidity into financial markets.
• Allianz adviser Mohamed El-Erian said the initial bond-market reaction pushed long-term yields lower, but argued that the more important issue is whether the Treasury’s move eventually leads to broader use of yield-curve-control measures.
• Deutsche Bank described the policy as a softer form of financial repression.
• Financial repression refers to policies that artificially suppress government borrowing costs, potentially allowing inflation to reduce the real burden of debt while diminishing the purchasing power of savings.
• That environment can be favorable for hard assets such as gold and Bitcoin because investors may seek alternatives to fiat currencies and traditional fixed-income assets.
• The Treasury announcement is therefore only part of the story behind Bitcoin’s rally. The unwinding of short positions and forced buying by bearish traders is also adding significant momentum to the move.

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