Editor's Note: On August 19, the U.S. Treasury Department announced an expansion of its long-term Treasury buyback program, increasing the maximum single-operation size for 10–20 year and 20–30 year Treasury bonds from $2 billion to at least $4 billion. Previously, the yield on the 30-year Treasury note had briefly risen to around 5.34%, the highest level since 2007. Following the announcement, long-end yields fell rapidly.
This gave the market a straightforward bullish narrative: the Treasury is taking more proactive steps to improve the liquidity of long-term bonds, potentially even creating a kind of "Treasury floor" expectation.
However, Marcus Nunes, in his article "The Treasury's $4 Billion Band-Aid," offers a counterpoint: while buybacks can indeed alleviate liquidity issues, if the pressure on long-term bonds stems from larger fiscal deficits, increased bond supply, and weaker marginal buying interest, then a $4 billion buyback does not address the real underlying conflict.
In other words, the market needs to distinguish between two things: the Treasury can make bonds easier to trade, but it cannot use buybacks to reduce the total amount the U.S. government ultimately needs to finance.
The following is a translated compilation of the original article:
On August 19, U.S. Treasury Secretary Scott Bessent announced an increase in the maximum single-operation size for liquidity support buybacks of 10–20 year and 20–30 year Treasury bonds, from $2 billion to at least $4 billion. The market reaction was swift. The yield on the 30-year Treasury note, which had earlier climbed to about 5.34%, subsequently retreated noticeably, while assets like stocks and gold strengthened in tandem.
But the author, Nunes, believes this reaction risks causing the market to overlook a more fundamental issue: Treasury buybacks address liquidity, not the fiscal deficit.
Buybacks Can Improve Trading, But Don't Reduce Government Financing Needs
Treasury buybacks are not quantitative easing.
When the Federal Reserve conducts QE, it can create base money to purchase Treasuries by expanding its balance sheet; the Treasury lacks this ability. The funds it uses to buy back old debt ultimately still come from its cash balance or from new debt issuance.
Therefore, Treasury buybacks are fundamentally more akin to debt structure management.
They can repurchase illiquid older securities, improving market liquidity, and can to some extent increase demand for bonds of specific maturities. However, they do not change one fact: the U.S. government still needs to issue bonds to finance its fiscal deficit.
The scale difference is particularly stark. The U.S. Treasury previously estimated needing to borrow a net $739 billion in the third quarter of 2026, while this single-operation buyback increase for long-term Treasuries is merely from $2 billion to at least $4 billion.
This is why Nunes refers to it as a "Band-Aid." Four billion dollars is enough to improve trading conditions for some long-term bonds, but it is unlikely to alter the overall supply and demand dynamics of the entire U.S. Treasury market.
What's Really Weighing on Long Bonds is the Growing Fiscal Supply
In Nunes's framework, the recent rise of the 30-year Treasury yield above 5% cannot be interpreted solely as a liquidity issue. More importantly, the amount the U.S. government needs to finance remains substantial.
In July 2026, the U.S. federal budget deficit reached $432 billion, a 48% year-over-year increase, setting a record high for any July. The cumulative deficit for the first 10 months of the fiscal year stands at approximately $1.8 trillion, already surpassing the total for the entire 2025 fiscal year.
U.S. Federal Deficit – Year-on-Year Comparison
Meanwhile, total U.S. federal debt surpassed $40 trillion on August 19. As the debt stock grows and borrowing costs have risen in recent years, interest expenses are also climbing higher.
This means the core problem facing the U.S. Treasury is not that "old bonds are hard to trade," but rather: who will absorb the massive future supply of new bonds? If investors believe fiscal deficits will remain elevated 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 malfunction, but rather a repricing of U.S. fiscal risk and duration risk.
The Buyer Problem Can't Be Solved by $4 Billion Either
Nunes also highlights the shift in foreign demand.
According to the U.S. Treasury's TIC data, foreign holdings of U.S. Treasuries decreased by approximately $72.1 billion month-over-month in June, with Japan, China, and the UK all seeing declines of varying degrees. This is not enough to prove foreign investors are "fleeing U.S. Treasuries en masse," as single-month holdings can be affected by exchange rates, custodian location changes, and asset allocation shifts. Furthermore, TIC data itself cannot fully identify the ultimate owners of securities. However, it at least indicates that previously stable foreign demand can no longer be taken for granted.
Foreign Holdings of U.S. Treasury Securities (June 2026)
More important is the buyer structure. If the willingness of foreign official institutions to absorb U.S. Treasuries declines, the U.S. will need to rely more on private investors. Private capital typically places greater emphasis on price and yield, meaning the market may require higher long-term interest rates to attract sufficient funds to take on the growing bond supply.
This is also why simply increasing buybacks doesn't solve the problem. The Treasury can buy back a portion of old debt, but it cannot dictate at what price other investors are willing to hold the large volumes of long-term bonds the U.S. will issue in the future.
The Real Divide: Is This a Liquidity Problem or a Fiscal Problem?
Supporters of expanding buybacks could argue that the Treasury is not attempting to solve the fiscal deficit. Buybacks are inherently a market liquidity tool. If they can improve the trading of old securities and reduce market friction, they have already achieved their policy objective. In this sense, criticizing buybacks with "$4 billion can't fix the deficit" might itself confuse the purpose of the policy tool.
But the real question Nunes poses is this: if the primary force driving long-end yields higher has shifted from liquidity to fiscal supply, then continuing to use liquidity tools will naturally have limited effectiveness.
These two explanations correspond to two completely different market judgments. If the recent selloff in long bonds was mainly due to insufficient market depth, deteriorating liquidity in old securities, and short-term positioning shocks, then the Treasury's expanded buyback might be enough to stabilize the market. However, if the rise in long-end yields primarily reflects persistent fiscal deficits, larger long-term bond supply, and higher term premia, then buybacks can only make the adjustment process smoother; they are unlikely to change the ultimate level of yields.
This is the article's core judgment: The Treasury can improve the "trading problem" in the Treasury market, but it cannot buy away America's "fiscal problem" through buybacks.
What truly needs to be watched next is not how much the Treasury increases its next buyback size, but whether long-term Treasury auctions continue to attract sufficient demand, whether the fiscal deficit narrows, and whether higher yields can re-attract foreign and private buyers.
If these variables do not improve, then the yield decline brought about by the $4 billion initiative is more likely to be a short-term buffer, rather than a true reversal of the pressure on U.S. long bonds.
