The U.S. Treasury Department has now poured $20 billion into a major Treasury buyback operation in the span of two weeks.
The Treasury’s June 3rd and June 10th buybacks, which are historic in size, allow the agency to repurchase securities maturing between May and July of this year.
The move has triggered social media speculation that a stealth quantitative easing operation is now underway, with the Treasury mimicking the Federal Reserve’s money-printing tactics to stimulate the economy.
Skeptics argue that by repurchasing illiquid bonds with borrowed funds, the Treasury is subtly propping up the bond market to maintain confidence in an overextended system.
But Bianco Research’s Jim Bianco says claims that the Treasury’s moves are a form of quiet QE are way off the mark.
“Everyone is calling Treasury buybacks “stealth QE.” They misunderstand. This is the Treasury, not the Fed…
The Treasury cannot “print.” The Treasury borrows new more liquid “on-the-run” bonds and uses the proceeds to buyback old illiquid “off-the-run” bonds.
Buybacks do not “create money,” rather they improve the overall quality of the bond market.
Buybacks support the bond market in that they make it more liquid so it reduces the (lack of) liquidity premium. But that’s only a few basis points.”
Treasury Secretary Scott Bessent recently touted the agency’s “big toolkit” to support the bond market if needed, citing buybacks as a strategic option to enhance liquidity and stabilize conditions.
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