Schiff Says Treasury's Increased Bond Buybacks Will Intensify Selling
Economist Peter Schiff criticized the Trump administration's announcement to expand long-term Treasury bond buybacks, stating that this move signals to investors that there are issues in the bond market, which may trigger more selling instead.
Treasury Secretary Scott Bessent previously announced that the Treasury will raise the single buyback limit for long-term Treasury bonds from $2 billion to $4 billion, covering bonds with maturities of 10 to 20 years and 20 to 30 years; the adjustment will take effect from September 9 and continue until November 4.
The Treasury's buyback involves purchasing existing Treasury bonds with cash and is not equivalent to the Federal Reserve's quantitative easing. Its official function is to improve market liquidity for specific bond types, adjust the debt portfolio, and support the operation of the Treasury bond market, rather than to reduce the U.S. government's net debt or directly create money.
After the announcement, long-term U.S. Treasury yields briefly fell; however, the market reversed, with reports showing the 10-year yield rising to about 4.69%, higher than before the Treasury's announcement, and the yield curve steepening, reflecting investors' continued concerns about the U.S. deficit, long-term inflation, and term premiums.
Schiff described this action as a "Treasury bailout," but the Treasury has not defined the measures as a bailout. The single buyback scale of at least $4 billion is relatively small compared to the approximately $31 trillion U.S. Treasury market and cannot independently change long-term debt supply, deficit financing needs, or inflation expectations.
Mechanically, buybacks can improve the liquidity of specific older bonds and temporarily increase buying, but if investors interpret it as the government trying to suppress long-end yields, they may demand higher term premiums to compensate for fiscal and inflation risks. Long-term Treasury bonds, mortgage-sensitive assets, and overvalued growth stocks are under pressure; money market funds, short-duration assets, and investors reallocating cash at higher rates benefit relatively. The trends in long-term bonds are still determined by the deficit, the structure of bond issuance maturities, inflation, economic growth, and demand from private and overseas buyers.
Source: Public Information
ABAB AI Insight
The U.S. Treasury officially launched a bond buyback program in 2023, with one of its core purposes being to enhance the trading efficiency of older bonds with lower liquidity, rather than reducing net liabilities like corporate stock buybacks. In the Treasury bond market, newly issued "on-the-run" bonds of the same maturity are typically easier to trade than older bonds, and buybacks can help the Treasury replace less liquid existing bonds and optimize debt management. Equating such operations directly with monetary easing confuses the Treasury's debt management with the Federal Reserve's balance sheet expansion.
From a capital perspective, the Treasury's increased demand for long bond buybacks will temporarily provide liquidity to dealers, funds, insurance institutions, and overseas accounts holding older bonds; however, the Treasury still needs to finance the deficit through new bond auctions. If buybacks are primarily coordinated with short bonds or new bond issuances, what the market actually sees is a partial removal of term risk from investors' balance sheets, which is then reintroduced in another term, rather than the disappearance of national debt. What truly affects financing costs are net supply, investors' duration preferences, and refinancing rates.
Historically, during the UK's 2022 "mini-budget" crisis, pension LDI strategies faced margin calls, and the Bank of England temporarily purchased long-term bonds to prevent market disorder; in March 2020, when liquidity in the U.S. Treasury market deteriorated, the Federal Reserve made large-scale purchases of Treasury bonds to restore market functionality. Compared to these two types of crisis interventions, the current Treasury buyback scale is much smaller and does not imply that the U.S. Treasury bond market has undergone a functional collapse; however, it does indicate that decision-makers are more sensitive to long-end yields and market liquidity.
The essence is a transfer of pricing power. In the past low-interest-rate period, the Treasury could continuously extend or roll over debt at a lower cost, with limited compensation for investors regarding term risk; as deficits widen, inflation becomes uncertain, and Treasury supply increases, bond buyers regain pricing power. Buybacks can only improve liquidity at the trading level and cannot replace long-term buyers' demands for fiscal discipline and real returns; if the market is unwilling to hold duration at low yields, every attempt by the government to manage the curve may be reinterpreted as a signal of financing pressure.
ABAB News · Law of Cognition
- Liquidity tools can fix trading but cannot fix debt repayment capacity.
- When the government buys back bonds, the market will still sell term risk.
- When buyers demand returns, policy can only manage the pace.