Bousset: Treasury Has 'Large Toolbox' to Stabilize Market, Size of Treasury Repo Program Could Exceed $40 Billion

BlockBeats News, August 21st. U.S. Treasury Secretary Yellen stated that the U.S. Treasury Department has various tools to address liquidity pressures in the U.S. bond market. They may further expand the bond repurchase program and plan to introduce a new fiscal consolidation plan. She said, "We have a large toolbox," and the Treasury Department hopes to improve market liquidity through policy operations rather than directly control the yield curve.

Yellen revealed that the Treasury Department's long-term bond repurchase program, set to start in September, may exceed $40 billion. Previously, the Treasury Department announced that it would at least double the size of the long-term bond repurchase program starting in early September. This news initially pushed U.S. bond yields down, but the market reaction quickly faded, and the yields on 10-year and 30-year Treasury bonds subsequently rose again.

Yellen stated that the expansion of repurchases is mainly to improve market trading order in the low-liquidity summer environment. Market participants believe that simply expanding repurchases may not change the trend of long-term U.S. Treasury yields. The Treasury Department may also alleviate financing pressures by adjusting the debt maturity structure, reducing long-term bond issuances, and increasing short-term Treasury bill issuances.

Furthermore, Yellen plans to work with the White House Office of Management and Budget Director Walsh to promote a new fiscal consolidation plan. The government may reduce waste by combating fraud, cutting inefficient spending, potentially saving hundreds of billions of dollars. Yellen said the U.S. budget deficit "has likely peaked," and an increase in tariff revenue is also expected to improve the fiscal situation.

Yellen also mentioned that the Treasury Department may cooperate with the Federal Reserve to address U.S. bond market pressures and issues related to the Fed's holdings of Treasury securities. However, Fed Chair Powell previously emphasized that interest rate levels should be determined by the market.

Currently, the fiscal pressure on the U.S. remains high, with the U.S. government's debt exceeding $40 trillion, and the fiscal deficit as a percentage of GDP approaching 6%. With limited room for tax cuts, spending cuts, and the rising premium on long-term bond yields, the market remains cautious about the long-term U.S. debt outlook.

Yellen also reiterated the U.S.'s commitment to a strong dollar policy, stating that the recent weakness in the dollar is mainly a pullback after a significant appreciation.