Bitcoin jumps to $78,000 after U.S. Treasury announces bond buybacks

U.S. Treasury bond buybacks push Bitcoin past $77,000

The U.S. Treasury announced it will double its buybacks of long-term government bonds to at least $4 billion per operation through early November. This move, aimed at improving bond market liquidity, helped push Bitcoin’s price above $77,000. Bitcoin rose 23% this week, marking its largest weekly gain since March 2023.

The Treasury will use money from short-term debt sales to fund these buybacks, not create new money. This approach is similar to “Operation Twist,” a policy used in 2011 to lower long-term borrowing costs without increasing the money supply.

While the buybacks are not the same as quantitative easing (QE) or yield curve control (YCC), they signal growing concern over rising long-term bond yields. This has led investors to speculate that more aggressive measures could follow.

What the Treasury’s plan includes

• The Treasury will buy back $4 billion or more of long-term bonds (10 to 30 years) per operation from September 9 to November 4.
• These buybacks target older bonds that trade less frequently, making them harder to buy or sell without affecting prices.
• The Treasury will fund these purchases by selling short-term debt, not by creating new money.
• Treasury Secretary Scott Bessent said the size of buybacks “could be more than $4 billion per issue.”

Why this is not QE or YCC

Quantitative easing (QE) is when a central bank, like the Federal Reserve, creates new money to buy bonds, injecting liquidity into the financial system. Only the Fed can do this.

Yield curve control (YCC) is a policy where a central bank sets a target for bond yields and buys as many bonds as needed to keep yields at or below that level. The U.S. last used a form of YCC during World War II, and Japan used it until March 2024.

The Treasury’s current buybacks do not involve creating new money or setting yield targets. Instead, they are a way to manage bond market liquidity.

What the move signals to markets

The Treasury’s announcement suggests growing unease over rising long-term borrowing costs. The 30-year bond yield, which fell briefly after the announcement, quickly rose again, showing that the buybacks may not be enough to stop yields from climbing.

Analysts say the buybacks are small compared to the overall bond market and may not change the upward trend in yields. However, the move raises expectations that the Fed could introduce more aggressive policies, such as YCC, in the future.

Mohamed El-Erian, an adviser at Allianz, said the bond market’s reaction shows that investors see this as a possible first step toward broader yield curve control. Deutsche Bank described the move as a “soft form of financial repression,” where government policies keep borrowing costs artificially low, benefiting assets like Bitcoin and gold.

What is confirmed

• The U.S. Treasury will double its bond buybacks to at least $4 billion per operation through early November.
• The buybacks will be funded by selling short-term debt, not by creating new money.
• Bitcoin’s price rose above $77,000, up 23% for the week, its largest weekly gain since March 2023.
• The Treasury’s move is not QE or YCC but resembles “Operation Twist.”

What remains unclear

• Whether the buybacks will have a lasting impact on long-term bond yields.
• If the Fed will introduce more aggressive measures like YCC in the future.
• How long the current Bitcoin rally will continue.

Why this matters for investors

The Treasury’s move signals that policymakers are concerned about rising borrowing costs and may take further action. This has fueled speculation that more liquidity could enter financial markets, benefiting assets like Bitcoin and gold. However, the buybacks themselves are small and may not be enough to change the broader trend in bond yields.

For crypto investors, the rally in Bitcoin shows that markets are reacting to expectations of future policy changes, even if those changes have not yet happened.

Sources

• CoinDesk
• CNBC