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The bond market is the most important financial securities market as the level of interest rates in an economy can enable, or stifle economic growth. Interest rates are directly inversely related to bond prices. So, when an investor in U.S. fixed income sells, it lowers the price, and interest rates rise.
Large investors like China and Japan were reportedly selling over the last few weeks, pressuring bond prices and worrying The White House over the economic effects. In fact, it was reported afterwards that the 90 day Trump tariff pause was related to a bond market scare.
With the political Fed working against the Trump administration by refusing to lower interest rates, other options need to be found to counter the selling of American securities by hostile powers.
But that may soon change, because while the Fed may pretend it has no choice but to wait until the hyperinflation from the tariffs manifests itself (some time in 2035, especially since tariffs are actually deflationary as we have explained for the past year) before easing, Bessent may take matters into his own hands, and without waiting for the Fed, ramp up the amount of treasury buybacks the US Treasury currently conducts every other day or so, in the open market (see full Buyback schedule here), reports Zero Hedge.
In fact, the Treasury secretary hinted at this himself in an interview with Bloomberg, when asked if he has contingency plans if the selloff becomes "more unnerving" (for example if foreign countries, i.e. China, may be selling US Treasuries in response to the trade war).
His answer: “we are a long way” from needing to take action, but “we have a big toolkit that we can roll out” if so, and included in that toolkit is the department’s buyback program for older securities, Bessent said. “We could up the buybacks if we wanted" (15'40" in the view below).
And that's precisely what will happen in a few weeks (or even days) if China's selling of Treasuries persists, sending yields plunging. The good news, is that this "soft QE" wouldn't have to be in place too long: only long enough for China to run out of reserves... mostly via Belgium's Euroclear...
