The United States Treasury Secretary, Scott Becent, has recently released a consistent policy signal: while increasing the scale of long-term United States debt buy-backs, it is mentioned that $5 billion to $10 billion worth of yen were purchased at the beginning of the month. The group led Wall Street to wonder if the Ministry of Finance was preparing for a wider market intervention.

Long-term dollar debt buy-back plus

This week, Becent indicated that the United States Department of the Treasury would “at least double” the scale of long-term national debt buy-backs and would be prepared to further expand the repurchase of high-cost debt. He described the approach as part of financial consolidation, with the aim of refocusing market attention on fundamentals rather than being driven by short-term news when the deal is light.

However, the market response was not strong. Following the news, long-term American debt prices continued to weaken, and the rate of return, although not out of control, remained high. Many agencies believe that the current size of repurchases is not sufficient to actually contain long-end interest rates.

  • According to the Fab team, the measure is unlikely to meet the expected upward pressure on interest rates.
  • Evelyn Partners suggested that intervention might still be insufficient.
  • UBS doesn't think it's surprising that the yen is back at the beginning of the year.

Japanese yen operation triggers speculation

With regard to exchange rates, Becent mentioned that the Ministry of Finance ' s to-dos at the beginning of the month included purchases of between $5 billion and $10 billion in yen. Although the yen has recovered from the low point in June, it has now largely returned to its level at the beginning of the year. The market therefore questioned whether the operation was a short-term exercise or related to broader bond arrangements.

In an interview with CNBC, Becent said that the information available to the market was incomplete and that the Ministry of Finance had “asymmetric information”. He also asked why the Treasury had chosen to intervene with Japan at that point in time, and whether the market had underestimated the Treasury's willingness to take a similar “reverse operation” in the bond market.

Division of Labour between the Treasury and the Federal Reserve

Another point of concern is whether or not Becent's approach conflicts with the thinking of the new Fed Chairman, Kevin Walsh. Walsh had previously stated that the upwards of the long-end rate of return itself helped the Fed to read market signals; he had also long argued for a reduction in central bank distortions to the market and had tended to continue to reduce the Fed ' s balance sheets.

On the face of it, the Treasury is trying to reduce long-term financing costs, while the Federal Reserve is more willing to allow the market to reflect austerity pressures on its own, and the direction is not exactly the same. However, Bercent indicated that if the Fed were to adjust its balance sheet, the Treasury would work with it and adjust it in accordance with the abbreviation.

Walsh had previously emphasized in Congress that the Fed should maintain its own line of responsibility and should not go beyond independent central banks to intervene in matters that belong to the Treasury or the executive branch. This means that, at least in public statements, the Ministry of Finance and the Federal Reserve continue to emphasize a division of labour rather than an open opposition.