Fed, Treasury moves coincide with Bitcoin’s recent rally

On Aug. 19 the U.S. Treasury announced it would double the cap on certain 10‑ to 30‑year bond buyback operations from $2 billion to $4 billion per operation, with the change effective Sept. 9. The Federal Reserve on the same day kept its policy rate at 3.50%–3.75% and released minutes showing three members voted for a 25‑basis‑point increase and others said further tightening could be needed if inflation did not fall.

The Treasury’s expanded cap applies to selected off‑the‑run buybacks of older long‑term notes and bonds. The program lets dealers sell less liquid securities back to the government so dealers can reduce holdings that are hard to trade and free up balance‑sheet capacity. The department has said buybacks are intended to support market functioning, not to reduce the overall stock of federal debt.

Treasury borrowing plans remain large. The department projects $739 billion of privately held net marketable borrowing for July–September and an expected $628 billion for October–December. The quarterly refunding schedule included up to $38 billion of off‑the‑run purchases for liquidity support and up to $25 billion of short‑maturity cash‑management operations.

The Fed’s July meeting minutes reported that nominal Treasury yields rose roughly 25 to 30 basis points during the meeting window, a move the minutes attributed mainly to higher real yields rather than a large change in inflation expectations. The Fed held its target range but market pricing reflected a chance of further rate increases.

Thirty‑year Treasury yields moved modestly around the announcements. The 30‑year yield closed at 5.28% on Aug. 18, fell to 5.19% on the day of the announcements and was about 5.27% on Sept. 2, according to Treasury daily yield data. Other market forces were active in the period and the Treasury’s larger buybacks had not yet begun.

The operations differ from central bank asset purchases. Treasury buybacks use cash from the Treasury General Account and are financed by taxes or new borrowing; they swap older securities for newer issues rather than create central‑bank reserves. The Fed buys short‑dated Treasury bills and, when needed, securities with three years or less to maturity to help manage bank reserves while setting short‑term interest rates through its policy rate and interest on reserve balances.

Long‑term yields reflect expected future short rates, inflation expectations and a term premium for locking up funds for decades. The combination of large deficits, the volume and maturity mix of issuance, and global savings flows are among the factors investors use to set yields. Because Bitcoin does not pay interest, higher inflation‑adjusted returns on safe government debt increase the opportunity cost of holding a non‑income asset. Buybacks may improve trading in specific parts of the Treasury market but do not materially reduce the total supply of federal debt.