The U.S. Treasury market remains overheated! Besent expands repo program, emphasizing "this is not quantitative easing"

According to information from Zhitong Finance APP, U.S. Treasury Secretary Wally Adeyemo stated on Tuesday that the Treasury's decision last month to expand the buyback program for old long-term U.S. Treasuries was mainly aimed at “cooling down” the recently heated bond market and steering it back toward balance. He also denied that this operation constituted quantitative easing (QE) and refuted the recent claims that the decline in U.S. Treasuries was mainly due to investors' concerns about the size of U.S. debt.

Speaking at an event in Washington on Tuesday, Adeyemo said that his responsibility is to help push the market back to a balanced state, but he does not believe that the Treasury can alter the intrinsic equilibrium price of assets. “My job is to try to push the market back to equilibrium,” Adeyemo said. “I don't think I can change the equilibrium price, but the market never stays in equilibrium all the time.”

Adeyemo’s remarks came as the U.S. Treasury is set to conduct its first long-term old bond buyback operation under the expanded plan on Wednesday. The Treasury announced last month that it would increase the scale of these buybacks after the yield on 30-year U.S. Treasuries had briefly climbed to its highest level since 2007, and the long-term bond market was experiencing significant selling pressure. Regarding the market environment at that time, Adeyemo described the bond market as being in a "feverish" state.

Having served as a senior executive at a hedge fund for many years, Adeyemo explained that, based on his past experience in financial markets, when market participants are speculating, they often try to accelerate market trends, and one of the purposes of the expanded Treasury buyback program is to help restore balance under such circumstances.

The so-called U.S. Treasury buyback refers to the U.S. Treasury Department buying previously issued government bonds in the secondary market. This plan mainly targets older securities with relatively low liquidity, aiming to improve market functioning and liquidity rather than directly altering the overall level of government debt.

At the same time, Adeyemo denied that the recent sell-off in U.S. Treasuries was mainly due to investors’ concerns over the government’s ever-growing borrowing. He argued that if the market were truly concerned about the U.S.'s credit standing, in theory investors would be selling U.S. Treasuries and buying German government bonds instead, but market performance does not support this view.

“If everyone is worried about the U.S.'s credit, you should sell U.S. Treasuries and buy German government bonds, but in fact the opposite is happening,” Adeyemo stated, adding that the relative performance of U.S. Treasuries has actually been stronger.

In addition, Adeyemo explicitly denied that the Treasury’s expanded buyback program amounts to another form of QE. Quantitative easing is typically implemented by the Federal Reserve, injecting liquidity into the financial system and lowering long-term financing costs by purchasing large amounts of government and other securities—a measure that has been used multiple times during past economic and financial crises. “I'm not doing QE,” Adeyemo said. Compared with QE, Adeyemo previously preferred to liken his policy approach to the Federal Reserve’s historic “Operation Twist.”