US Treasury Buyback Boosts Gold as Fed Debt Hits $40 Trillion Mark

The US Treasury has announced it will double the size of its liquidity-support buyback operations for longer-dated Treasuries, aiming to reduce supply pressure on these bonds. The move is set to take effect from September 9 through November 4.

The bond market's response was immediate: spot gold prices surged more than 3-4% on the day, blowing past $4,500 per ounce and closing in on three-month highs near $4,600.

Analysts say the intervention is designed to absorb some of the supply pressure without implementing yield-curve control. By purchasing its own longer-dated debt, the Treasury reduces the available supply in the market, which should push prices up and yields down.

However, critics argue that this strategy doesn't address the underlying fiscal trajectory of the US federal debt, which has crossed the $40 trillion mark. At 30-year Treasury yields hitting 5.34%, the annual interest cost on $40 trillion in debt becomes a staggering line item in the federal budget.

The buyback expansion is seen as a short-term relief measure that may create increased volatility in the long end of the curve. Market participants are positioning for this eventuality, and the September 9 start date creates a three-week window where markets will be pricing in the intervention without actually seeing it operate.