The Buyer of Last Resort

• The Treasury just doubled the size of its bond buyback program

• The goal is to cap long-term interest rates

• The federal reserve is more likely to cut rates next than to raise them

• Gold and bitcoin are the winners, and I believe a new bitcoin bull market has likely begun

[3 minute read]

The government borrows money for different lengths of time.

Short-term debt gets paid back within a year, while long-term debt gets paid back over 10 to 30 years.

Because of inflation and excess government spending, the U.S. Treasury has been having a hard time finding buyers for its long-term debt.

On Wednesday, the U.S. Treasury announced it will at least double its bond buybacks from $2 billion to $4 billion per operation, targeting 10 to 30 year bonds.

In plain English: the government is buying back its own debt.

Where does the money come from?

The Treasury issues new short-term bills to fund the purchases of older bonds with longer dated maturities.

The long bond has been searching for a buyer since June.

It finally found one in the issuer.

In my August 13th interview on the Enter the Lionheart podcast, I explained that a new money printing catalyst would emerge:

Performance since Wednesday’s announcement:

The purpose is to cap long-term interest rates.

With U.S. federal debt exceeding $40 trillion this week, the government cannot afford a 30-year yield marching from 5.25% towards 7%.

Secretary Bessent has now shown the market where the put is.

When yields spike, the Treasury will act.

Expect them to defend that 5.25% level.

Buybacks alone are unlikely to be sufficient.

Two bigger tools could be coming.

1. SLR relief: The Supplementary Leverage Ratio requires banks to hold capital against everything they own, including Treasuries. Exempting Treasuries from the calculation frees banks to buy government debt in size. That creates a new buyer to absorb the short-term bills the Treasury is issuing.

2. Rate cuts: The Treasury is now funding itself at the front of the curve. Cutting short-term rates directly lowers the government’s own borrowing costs. The Fed will find a reason.

1. Rate cuts are coming, and that is not consensus.

2. This will be inflationary for goods, services, and asset prices.

3. Bitcoin and gold will perform the best.

I’ve been bearish on bitcoin since November.

I believe the cycle lows are now in, and a new bull market has begun.

Bitcoin back to $100,000 by year end would not surprise me.

The government has started buying its own debt because no one else will at these prices.

When the borrower becomes the buyer, own what they can’t print.