Bitcoin and other hard assets are rallying less because of the Treasury’s immediate action and more because of the signal it sends about policymakers’ concerns over rising borrowing costs.
The U.S. Treasury announced Wednesday that it would increase support for the long-term government bond market after borrowing costs reached their highest level in nearly two decades. The surge in yields had raised concerns for both federal finances and risk assets, including crypto.
The move does not involve creating new money and is not equivalent to quantitative easing (QE) or yield curve control (YCC), two policies that can significantly increase liquidity and encourage investors to take on more risk.
Nevertheless, Bitcoin and gold have moved sharply higher while the dollar has weakened against major currencies. BTC broke above $77,000 and gained roughly 23% over the week, marking its strongest weekly advance since March 2023, according to CoinDesk data.
The key to understanding the rally may be the message behind the Treasury’s decision rather than the buybacks themselves.
What Treasury Is Doing
From Sept. 9 through Nov. 4, the Treasury plans to conduct multiple buyback operations involving $4 billion or more of long-term bonds with maturities between 10 and 30 years. The new ceiling is twice the previous $2 billion limit.
Treasury Secretary Scott Bessent indicated that individual operations could potentially exceed $4 billion.
The securities targeted by the program are older Treasury bonds that generally trade less frequently and can therefore be harder to buy or sell without influencing prices.
The Treasury will fund the purchases with money it already holds or through proceeds from issuing short-term Treasury securities. It is not creating new money to finance the program.
RIA Advisors strategist Lance Roberts compared the approach with the Federal Reserve’s 2011 Operation Twist, when the central bank purchased longer-term bonds while selling shorter-term securities.
Operation Twist sought to reduce long-term borrowing costs by influencing the shape of the yield curve without injecting fresh money into the financial system. The Treasury’s current strategy follows a similar principle.
Why It Doesn’t Qualify as QE or YCC
QE involves the Federal Reserve creating new bank reserves and using them to purchase financial assets, thereby adding fresh liquidity to the financial system.
YCC works by setting a target for a particular government bond yield and committing to buy enough bonds to prevent that yield from moving above the desired level.
The U.S. previously used a form of yield-curve control from 1942 to 1951, while Japan operated an explicit YCC policy from 2016 until 2024.
Both policies can loosen financial conditions and encourage risk-taking. Treasury’s latest move is instead aimed at managing liquidity and supporting the functioning of the bond market as long-term yields remain elevated.
Investors Are Watching the Signal
The size of the Treasury’s intervention is relatively modest compared with the broader bond market and the amount of new debt being issued. That makes the signal behind the policy potentially more important than the purchases themselves.
The decision suggests policymakers are looking for ways to limit the rise in borrowing costs without directly tackling the government’s expanding fiscal deficit.
Long-term yields could therefore resume their upward trend. The 30-year Treasury yield dropped from 5.30% to 5.18% following Wednesday’s announcement before recovering to around 5.25%.
ING analysts said the buybacks are unlikely to materially change the underlying direction of long-term yields because their size is small relative to overall Treasury issuance.
The timing also stands out. The announcement came as long-term yields were near their highest levels since 2007, suggesting policymakers are increasingly uncomfortable with the cost of government borrowing.
Bessent said Treasury has several tools available and suggested the move was partly intended to demonstrate that officials believe current bond yields are not fully justified by economic fundamentals.
Saxo Bank’s Ole Hansen said the announcement shows Treasury is paying greater attention to market liquidity and upward pressure on long-term borrowing costs.
If yields continue rising, policymakers could eventually consider more aggressive measures. One possibility would be formal YCC, under which the Federal Reserve would purchase as many bonds as necessary to keep yields on maturities such as the 10-year or 30-year Treasury below a specified threshold.
Such a policy could cause a substantial expansion of the Fed’s balance sheet and deliver a much larger liquidity injection into financial markets.
Allianz adviser Mohamed El-Erian noted that longer-term yields initially declined following the announcement but said the bigger question is whether Treasury’s move eventually opens the door to broader use of YCC.
Deutsche Bank characterized the measure as a mild form of financial repression.
Financial repression generally involves policies that keep government borrowing costs artificially low, potentially allowing inflation to reduce the real value of government debt and savings.
Such conditions can benefit hard assets such as Bitcoin and gold as investors look for protection against currency depreciation and negative real returns.
Treasury’s announcement is only one factor behind Bitcoin’s latest surge. The rapid unwinding of bearish positions and resulting short covering has also added substantial fuel to the rally.
