US Treasury Bond Buyback Expansion, Stealth QE?...Will the Crypto Market Direction Change?

▲ US, Treasury Bonds, Bitcoin (BTC), Wall Street/AI-generated image

The US Treasury's expansion of long-term bond buybacks has ignited a 'stealth quantitative easing (QE)' debate, emerging as a new variable for risk assets like Bitcoin (BTC).

Lark Davis, host of the crypto podcast 'The Lark Davis Show,' thoroughly analyzed the US Treasury's expanded long-term bond buybacks in an episode on September 10 (local time). Wall Street anticipates the buyback volume to be between $5 billion and $6 billion. The previous limit for long-term bond buybacks was approximately $2 billion, which later increased to a standard size of $4 billion. Davis reported that there are market observations suggesting the buyback for 30-year bonds could expand up to $10 billion.

The heightened market reaction is attributed to the Treasury bond auction schedule and high interest rates. The announcement of the expanded buybacks came ahead of the 10-year and 30-year Treasury bond auctions. The 30-year bond yield approached its highest level in approximately 20 years, and the US government's annual interest expenses exceeded $1 trillion. Davis explained that expectations have formed in the market that absorbing some of the long-term bond supply could limit a sharp rise in interest rates.

The core issue is whether this measure can be considered quantitative easing. The Treasury issues short-term bonds and uses the proceeds to purchase existing long-term bonds. While the amount of long-term bonds circulating in the market decreases, the Federal Reserve's (Fed) balance sheet does not expand. Some in the cryptocurrency market interpret this as 'stealth QE,' but the Treasury's explanation focuses on market liquidity and debt management. Davis also drew a line, stating, 'It's not a confirmed fact, but a debate surrounding interpretation.'

There is also considerable skepticism regarding the actual effect. The private holdings of Treasury bonds with maturities of 10 years or more, as presented in the video, amount to approximately $3.6 trillion to $3.8 trillion. A $4 billion buyback accounts for only about 0.07% of the total. In the past, there have been instances where long-term interest rates rose even after the Treasury executed planned buybacks. Davis pointed out that even after the recent $4 billion measure, the 10-year yield rose to approximately 4.8%.

Davis ultimately viewed the movement of long-term interest rates as a key indicator determining the direction of Bitcoin and other risk assets. He explained that if long-term rates fall, financial conditions would ease, creating a favorable environment for risk assets like Bitcoin and Nasdaq. Conversely, if interest rates do not fall despite expanded buybacks, expectations for the policy's effectiveness could weaken. The argument that the stablecoin regulation bill GENIUS would increase demand for short-term Treasury bonds was also introduced, but Davis categorized it as a market theory rather than a confirmed fact. As the ultimate criteria for judgment, he presented long-term Treasury bond yields and the actual reduction in the Treasury General Account (TGA).

[Article Key Summary]

-The prospect of the US Treasury's long-term bond buyback expanding to $5 billion-$6 billion has fueled the 'stealth QE' debate.

-A $4 billion buyback accounts for only about 0.07% of the long-term bond market, leading to skepticism about its actual effect on lowering interest rates.

-Lark Davis analyzed that the movement of long-term interest rates and the Treasury General Account are key indicators for risk assets like Bitcoin.

*Disclaimer: This article is for investment reference only, and we are not responsible for investment losses based on it. The content should be interpreted for informational purposes only.*