Opinion: A $40 billion buyback program can save liquidity, but it can't save the US Treasury.

Original title: The Treasury's $4 billion contingency plan Original author: Marcus Nunes
Compiled by: Peggy

Editor's Note: On August 19, the U.S. Treasury announced an expansion of its long-term Treasury repurchase program, raising the maximum repurchase size for 10-20 year and 20-30 year Treasury bonds from $2 billion to at least $4 billion. Previously, the yield on 30-year Treasury bonds had risen to approximately 5.34%, the highest since 2007; however, long-term yields quickly fell after the announcement.

This provides the market with an intuitive reason to be bullish: the Ministry of Finance is taking a more proactive approach to improving the liquidity of long-term bonds, and may even create a kind of "Ministry of Finance backing up" expectation.

However, Marcus Nunes offers a counter-argument in "The Treasury's $4 Billion Emergency Measures": while buybacks can indeed alleviate liquidity problems, if long-term debt pressures stem from larger fiscal deficits, higher bond supply, and weaker marginal buying, then the $4 billion buyback does not address the real issue.

In other words, the market needs to distinguish between two things: the Treasury can make bonds easier to trade, but it cannot reduce the amount of financing the US government ultimately needs through buybacks.

The following is a translation of the original text:

On August 19, U.S. Treasury Secretary Scott Bessent announced that the size of a single liquidity support repurchase agreement for 10-20 year and 20-30 year U.S. Treasury bonds would be increased from a maximum of $2 billion to a minimum of $4 billion. The market reacted swiftly. The yield on 30-year U.S. Treasury bonds, which had previously risen to approximately 5.34%, subsequently fell significantly, and assets such as stocks and gold strengthened in tandem.

However, the author of this article, Nunes, believes that this reaction could easily cause the market to overlook a more fundamental issue: the Treasury’s buybacks address liquidity, not the fiscal deficit.

Buybacks can improve transactions, but they will not reduce the government's financing needs.

The Treasury’s repurchase is not quantitative easing.

When the Federal Reserve conducts quantitative easing (QE), it can create base money by expanding its balance sheet to purchase Treasury bonds; the Treasury does not have this capability. The funds it uses to buy back old debt ultimately come from fiscal cash or new debt financing.

Therefore, the Ministry of Finance's repurchase is essentially closer to debt structure management.

It can buy back old bonds that are not actively traded, thereby improving market liquidity, and it can also increase demand for bonds with a certain maturity to some extent, but it will not change the fact that the US government still needs to finance its fiscal deficit by issuing bonds.

The difference in scale is particularly striking. The U.S. Treasury had previously projected that it would need net borrowing of $739 billion in the third quarter of 2026, while the size of this single long-term Treasury bond repurchase operation has only increased from $2 billion to at least $4 billion.

This is why Nunes calls it a "Band-Aid." $4 billion is enough to improve market trading conditions for some long-term bonds, but it's unlikely to change the supply and demand dynamics of the entire U.S. Treasury market.

What truly weighs on long-term debt is the ever-increasing fiscal supply.

Within the framework of Nunes, the recent rise in the 30-year US Treasury yield to above 5% cannot be interpreted solely as a liquidity issue. More importantly, the amount of financing needed by the US government remains substantial.

In July 2026, the U.S. federal budget deficit reached $432 billion, a 48% year-on-year increase and the highest July deficit ever recorded. The cumulative deficit for the first 10 months of the fiscal year was approximately $1.8 trillion, already exceeding the level for the entire fiscal year of 2025.

US Federal Deficit - Annual Comparison

Meanwhile, the total U.S. federal debt surpassed $40 trillion on August 19. As the debt has expanded and financing costs have risen in recent years, interest payments have also increased.

This means that the core problem facing the U.S. Treasury is not that "old debt is hard to trade," but rather: who will absorb such a massive supply of new debt in the future? If investors believe that the fiscal deficit will remain high in the future, they will demand higher yields to absorb the supply of long-term bonds.

From this perspective, the 30-year yield breaking through 5% may not be a temporary market failure, but rather a repricing of US fiscal and term risks.

The issue of buying power cannot be resolved with just $4 billion.

Nunes also emphasized changes in overseas demand.

According to data from the U.S. Treasury Department's Treasury Institutional Investor (TIC), foreign holdings of U.S. Treasury securities decreased by approximately $72.1 billion in June compared to the previous month, with Japan, China, and the UK all experiencing varying degrees of decline. This is not sufficient to prove that foreign investors are "massively fleeing U.S. Treasury bonds," as monthly holdings are affected by exchange rates, custody locations, and changes in asset allocation. Furthermore, TIC data itself cannot fully identify the ultimate owners of securities. However, it at least demonstrates that the relatively stable overseas demand of the past cannot be taken for granted.

Foreign holdings of U.S. Treasury securities (June 2026)

More importantly, there's the issue of buyer structure. If overseas official institutions are less willing to absorb US Treasury bonds, the US will need to rely more on private investors. Private funds typically prioritize price and yield, meaning the market may need higher long-term interest rates to attract sufficient funds to absorb the increasing bond supply.

This is why simply increasing repurchase agreements cannot solve the problem. The Treasury can buy some of the old debt, but it cannot determine at what price other investors are willing to hold the large amount of long-term bonds that the United States will issue in the future.

The real point of contention: Is this a liquidity problem or a fiscal problem?

Those who support expanding repurchase agreements may argue that the Treasury Department is not attempting to address the fiscal deficit. Repurchase agreements are essentially a market liquidity tool; as long as they improve the trading of existing bonds and reduce market friction, they have already achieved their policy objectives. In this sense, criticizing repurchase agreements with the claim that "$4 billion cannot solve the deficit" may be a misinterpretation of the purpose of policy tools.

But the real problem raised by Nunes is that if the main force driving up long-term yields has shifted from liquidity to fiscal supply, then continuing to use liquidity tools will naturally have limited effect.

These two interpretations correspond to two completely different market judgments. If the recent sell-off in long-term bonds is mainly due to insufficient market depth, deteriorating liquidity in existing bonds, and short-term position shocks, then the Ministry of Finance's expanded repurchase operations may be sufficient to stabilize the market. However, if the rise in long-term yields mainly reflects a persistent fiscal deficit, a larger supply of long-term bonds, and a higher term premium, then repurchase operations can only smooth the adjustment process but are unlikely to change the final yield level.

This is also the core judgment of this article: the Treasury can improve the "trading problem" of the US Treasury market, but it cannot solve the "fiscal problem" of the United States through repurchase.

What we really need to observe next is not how much the Ministry of Finance will increase the size of its next repurchase, but whether the auction of long-term treasury bonds can continue to attract sufficient demand, whether the fiscal deficit will narrow, and whether higher yields can once again attract overseas and private buyers.

If these variables do not improve, then the yield decline brought about by the $4 billion is more likely to be a short-term buffer rather than a real reversal of the pressure on US long-term debt.