Treasury Buybacks and the Clarity Act: A Tug-of-War Over Rates
The Treasury Department announced an expansion of its long-term bond buyback size from a minimum of $4 billion to $6 billion, but the market was disappointed as it had expected a level of $8 billion to $10 billion, causing Treasury yields to rise across the board from 2-year to 30-year maturities. During Asian trading hours, the 2-year yield stood at 4.432%, the 10-year at 4.843%, and the 20-year broke above 5.3%. However, the overnight 10-year auction showed a solid bid-to-cover ratio of 2.7-to-1, indicating that underlying demand remained firm, with some also viewing current levels as an attractive absolute-yield zone.
Secretary Bessent has repeatedly urged passage of the stablecoin-related Clarity Act, which is tied to a virtuous-cycle concept: encouraging stablecoin issuers to purchase short-term Treasuries as pegged assets, thereby boosting short-term Treasury demand and, on that basis, securing capacity for long-term Treasury purchases. However, unresolved issues remain, including the scope of bank participation and conflict-of-interest concerns for public officials, raising the likelihood that even the cloture vote on the bill — originally slated for mid-September — could be delayed.
Ultimately, rising oil prices are feeding through to inflation and rate pressures, and the Treasury's buyback and stablecoin policy efforts to ease this have repeatedly failed to produce clear results, reinforcing the diagnosis that the only fundamental solution is an end to the war.