Aug 28, 2026 · 33 min · 10 segments
The US Treasury’s surprise decision to double the size of its regular long-end bond buybacks has reignited debate about how governments can manage rising borrowing needs and weaker demand for…
Imogen BachraHost
Oriane ParmentierGuest
Stuart SparksGuest
And I don't think that this is the beginning of an overt pressure to flatten the curve, flatten the term premium, but rather The first step, doubling the size of the regular bond buybacks, is more about maintaining market liquidity.
I think discouraging excessive positioning and just making sure the market functions without interruption.
There is an important reason why I think the intention is not at this point to push the term premium lower.
And the direct result of that operation was a strong bid for risk assets, most notably housing.
And so what you could argue is that there is an obvious reason not to flatten the term premium in that it would likely buoy housing prices and exacerbate the affordability issue, which is looming so large for the US midterms.
The elephant in the room, I suppose the bazooka that was threatened was investing TGA funds and using those to feed buybacks.
And I think You know, again, there is a, I would argue, a small probability that the intention at this point is to provide that sort of stimulus, perhaps most notably because the Treasury has very substantial net borrowing needs itself.
And if they go down this road of issuing new debt to buy back old debt, then in the volumes necessary to become economically important, I think would jeopardize the regular issuance of coupon debt and so forth.
In the end, I would argue that Besant believes all of the objections that we heard from Stanley Druckenmiller, his erstwhile colleague, and that really these sorts of measures are rearranging deck chairs on the Titanic.
And we have to remind ourselves that Besson was part of the team, in part pushed Sterling out of ERM.
So he understands what happens when sovereigns do not heed even tough love from markets.
So I think that a shoving match is not what he's after, but rather maintaining orderly and liquid market conditions at this point.
You talk about maintaining liquid market conditions, but I think also recognize the fact that this is a bit of rearranging debt shares.
And if you don't sort of solve the underlying fiscal dynamics, there could be, you know, other risks further down the line.
But certainly the announcement last week, I guess, raised expectations amongst market participants that there could be further action to come, you know, whether that be about reducing long end coupon supply or something else.
And I don't think that this is the beginning of an overt pressure to flatten the curve, flatten the term premium, but rather The first step, doubling the size of the regular bond buybacks, is more about maintaining market liquidity.
I think discouraging excessive positioning and just making sure the market functions without interruption.
There is an important reason why I think the intention is not at this point to push the term premium lower.
And the direct result of that operation was a strong bid for risk assets, most notably housing.
And so what you could argue is that there is an obvious reason not to flatten the term premium in that it would likely buoy housing prices and exacerbate the affordability issue, which is looming so large for the US midterms.
The elephant in the room, I suppose the bazooka that was threatened was investing TGA funds and using those to feed buybacks.
And I think You know, again, there is a, I would argue, a small probability that the intention at this point is to provide that sort of stimulus, perhaps most notably because the Treasury has very substantial net borrowing needs itself.
And if they go down this road of issuing new debt to buy back old debt, then in the volumes necessary to become economically important, I think would jeopardize the regular issuance of coupon debt and so forth.
In the end, I would argue that Besant believes all of the objections that we heard from Stanley Druckenmiller, his erstwhile colleague, and that really these sorts of measures are rearranging deck chairs on the Titanic.
And we have to remind ourselves that Besson was part of the team, in part pushed Sterling out of ERM.
So he understands what happens when sovereigns do not heed even tough love from markets.
So I think that a shoving match is not what he's after, but rather maintaining orderly and liquid market conditions at this point.
You talk about maintaining liquid market conditions, but I think also recognize the fact that this is a bit of rearranging debt shares.
And if you don't sort of solve the underlying fiscal dynamics, there could be, you know, other risks further down the line.
But certainly the announcement last week, I guess, raised expectations amongst market participants that there could be further action to come, you know, whether that be about reducing long end coupon supply or something else.
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