Original Title: Did Bessent 'Put' Us Back On The Road To QE?
Original Author: The Heisenberg Report
Translation: Peggy

Editor's Note: On August 19, the U.S. Treasury announced an expansion of long-term Treasury liquidity support repurchase agreements, increasing the single round of repurchase for 10-20 year and 20-30 year nominal coupon Treasuries from a maximum of $20 billion to at least $40 billion. The new arrangement will be effective from September 9. Before the announcement, the 30-year Treasury yield briefly rose to around 5.34%, hitting a post-2007 high; after the announcement, the long-end yield retraced momentarily.

$40 billion is not significant compared to the over $30 trillion U.S. Treasury market, and the repurchase itself does not equate to quantitative easing. What really sparked market discussion is the timing of the announcement: the Treasury had just concluded the quarterly refunding announcement two weeks ago but suddenly increased the size of long-term bond repurchase outside the regular window. This led investors to reassess how willing the Treasury is to actively intervene in the market as long-term yields spike.

The Heisenberg Report cited Nomura Securities' Cross-Asset Strategist Charlie McElligott and Rabobank's Strategist Michael Every's assessment, interpreting this move as a policy signal: the U.S. government may not be willing to let long-term funding costs keep rising, thereby constraining fiscal spending, geopolitical strategy, and private sector financing. This led the market to create the 'Bessent Put,' referring to the 'Bessent Floor Expectation.'

However, there is still a long way to go from expanding repurchases to yield curve control or even restarting quantitative easing. This article is not really discussing whether 'QE is back,' but whether the U.S. policy reaction function is changing: if fiscal pressures, inflation, AI financing, and geopolitical conflicts continue to drive up long-term rates, will the Treasury and the Fed be forced to take stronger actions?

Below is the translation of the original article:

After the U.S. Treasury expanded long-term Treasury repurchases, the market's initial questions were not about the scale but two more direct questions: why now? Does this imply that the U.S. government is starting to set an implicit floor for long-term yields?

Some investors have already dubbed this arrangement the 'Bessent Put,' or the 'Bessent Floor Expectation'; others have called it a 'lite QE' or a new round of 'Twist Operation.' These names are not formal policy concepts but market speculations on the Treasury's policy intentions.

On August 19, the U.S. Department of the Treasury announced that it would increase the liquidity support repurchase size for 10–20-year and 20–30-year Treasury Inflation-Protected Securities (TIPS) from a maximum of $20 billion to at least $40 billion. The official reason given by the Treasury was that the long-term bond repurchase continued to receive a large number of high-quality bids, and therefore, they aimed to provide stronger liquidity support for these tenors.

This explanation did not completely dispel market doubts. A single $40 billion repurchase remains limited, but just before the announcement, long-dated U.S. Treasuries had just experienced a rapid sell-off, with the 30-year yield briefly spiking to around 5.34%. Therefore, investors were more concerned not with how much the Treasury actually bought but with what signal it chose to send at this point in time.

$40 Billion Is Not Large, Unexpected Announcement Itself Is More Important

Nomura Securities' cross-asset strategist Charlie McElligott believes that the specific size of the repurchase is not the key issue. More importantly, Powell seems to be telling the market that the U.S. government cannot accept continued disarray in the long-term Treasury market, and fiscal and monetary authorities may take a more proactive stance than before.

This is an analyst's interpretation of policy intent, not a confirmed yield level target by the Treasury. Officially, the Treasury still defines this adjustment as "liquidity support" and has not announced any yield level they are aiming to support.

However, the timing of the announcement reinforces market speculation. The U.S. Treasury usually communicates funding and debt management arrangements through the Quarterly Refunding Announcement (QRA). This adjustment came just about two weeks after the last QRA, outside of the regular communication window.

According to McElligott, this unconventional timing indicates that the speed of the rise in pressure on the long end of the bond market may have exceeded the policy sector's previous expectations. Consequently, the market interpreted the announcement as a "signaling operation": the Treasury aims to prevent further deterioration of liquidity from amplifying the rise in long-term rates, rather than just routine optimization of the bond structure.

This assessment still needs to be cautious. The subsequent decline in yields after the announcement only indicates that the market reacted immediately to the news, not that the Treasury has successfully lowered long-term funding costs. In fact, the subsequent pressure on long-dated yields also indicates that small-scale repurchases may not be enough to offset deeper factors such as fiscal deficits, inflation, and bond supply.

Long Bond Pressure Does Not Originate From a Single Variable

The article believes that the repurchase behind this is not a single liquidity issue, but that multiple adverse factors are simultaneously squeezing long bond demand.

First is the continued expansion of the US fiscal deficit and debt supply. When investors hold long-term bonds, they usually require an additional return to compensate for inflation, fiscal, and interest rate volatility risks. This part of the return is known as the term premium. The original text's referenced chart shows that the estimated 10-year US Treasury term premium has approached nearly 80 basis points, about twice the peak of the 2023 sell-off in long-end bonds.

Secondly, AI infrastructure development is bringing a large amount of corporate bond financing. Tech companies and data center operators need to raise funds for chip, power, and computing facilities. The increase in corporate credit bond supply will compete with US Treasuries for private sector balance sheets. McElligott summarizes this as a "crowding-out effect": when both government and corporate bonds are issued in large quantities, there is a limit to the long duration risk the market can absorb.

Japanese factors have also added to the uncertainty. Japan is a significant overseas holder of US Treasuries. The depreciation of the yen and its potential intervention needs make the market concerned that Japanese institutions may sell off some US Treasuries to raise dollars. The article links the recent US engagement in the foreign exchange market with the Treasury's expansion of long bond buybacks, suggesting that policymakers may want to avoid reinforcing exchange rate intervention and US Treasury sell-offs.

However, this is still a market interpretation. Public information can confirm that the US Treasury has expanded long-term bond buybacks, and pressure on long bonds, the yen, and corporate financing can be observed. Still, the Treasury has not provided a full explanation of whether these factors directly constitute the reason for this policy adjustment.

「Bessent Put」 Points to a New Policy Reaction Function

What the market is truly repricing is the US government's policy reaction function.

The so-called policy reaction function refers to investors' judgment of what actions policymakers may take under what conditions based on their past behavior. If the market believes that after long-term rates rise to a certain level, the Treasury will increase buybacks, adjust issuance maturities, or enhance coordination with the Fed, investors may begin to factor in this potential intervention into bond prices in advance.

The "Bessent Put" is precisely the market expression of this expectation. It is not an official policy, nor is it a Treasury commitment to support US bond prices. It refers to investors starting to speculate: when long-term yields threaten government financing, economic activity, or other policy objectives, Bessent might take more proactive debt management measures.

Michael Every further explains from a geopolitical strategic perspective that what the US government may focus on is not just "lowering yields" but avoiding long-term funding costs limiting its foreign policy, especially against the backdrop of ongoing tensions with Iran and rising energy supply risks.

Every believes that in the past, the United States could conduct external actions by controlling financing conditions and key supply chain support. However, the current situation is more complex. The United States does not fully control the energy and related physical supply chain, and even though some crude oil can still be transported through the Strait of Hormuz, finished oil supply may not be able to recover concurrently.

McElligott also raised similar risks: if the Gulf situation escalates again, the impact could spread globally through finished oil, manufacturing, and inflation. Crude oil inventories can be released, but refining capacity and finished oil supply cannot be quickly replenished simply by releasing inventories.

This means that policymakers may face two opposite pressures at the same time: geopolitical conflicts pushing up energy prices and inflation, requiring interest rates to remain relatively high; fiscal financing and economic pressure, yet demanding long-term rates not rise indefinitely. Expanding repurchases may alleviate market liquidity, but it cannot eliminate this policy contradiction.

Repurchase Is Not QE, Further Impact Is Needed for Yield Curve Control

Does expanding government bond repurchases mean that the United States has returned to the path of quantitative easing? The original text suggests that this may open up such a discussion, but it is still too early to draw conclusions.

The Treasury's repurchase is fundamentally different from the Fed's quantitative easing. Treasury repurchases are mainly debt management operations, buying back old securities with poor liquidity, coordinating with the issuance of other maturity bonds to improve market operations or adjust debt structure; while QE involves the Federal Reserve's large-scale purchase of assets and injecting reserves into the banking system, directly expanding the central bank's balance sheet.

Therefore, liquidity repurchases at the $40 billion level cannot directly be called QE, nor are they sufficient to prove that the Treasury is implementing formal yield curve suppression.

McElligott believes that this announcement is more like an "intention statement," prompting further market discussion on the possibility of YCC or QE. YCC refers to yield curve control, where the central bank commits to buying bonds to limit specific maturity yields near the target level; LSAP refers to large-scale asset purchases, which is also a primary form of quantitative easing implementation.

However, he also emphasizes that before these tools become the next policy choice, the market and economic environment must "deteriorate much further." In other words, the "Powell Put" currently changes investors' imagination about the policy boundary, rather than indicating that the United States has launched a new round of QE.

What needs to be observed next is not only whether the Treasury continues to expand the size of single repurchases, but also whether long-term yields can stabilize, term premiums fall back, the Treasury further shortens debt issuance duration, and whether the Fed will adjust its balance sheet policy accordingly.

If these measures continue to escalate, the market's perception of "Treasury backstop" and policy coordination will be strengthened; if long-term rates continue to rise under structural pressure, and the Treasury still limits repurchases to small-scale liquidity operations, then this announcement is more likely just an attempt to stabilize the market in the short term rather than the starting point for QE.

[Original Article]

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