Market Extra: ‘This is not QE or QT. This is none of those.’ Why the U.S. Treasury is exploring debt buybacks

by | Oct 14, 2022 | Stock Market

The U.S. Treasury Department on Friday said it plans to start talking with primary dealers in late October about the potential for it to begin buying back some of its older debt to help stave off market dysfunction. The plan, if adopted, would mark a milestone in the roughly $22.6 trillion U.S. government debt market, the world’s largest, by providing a new tool for the Treasury to help aid market liquidity, a source of growing concern.

See: Treasury’s Yellen worried about ‘loss of adequate liquidity’ in U.S. government bond market The proposal comes after the Bank of England was forced to step in with an emergency program to temporarily buy its government debt and to give U.K. pension funds more time to unwind soured bets. The volatility erupted as global central banks have worked to fight soaring inflation by ending easy-monetary policies that prevailed for much of the past decade. Importantly, unlike in the U.K., the new Treasury proposal is separate from the Federal Reserve’s plans to sharply cut the size of its balance sheet by letting its holdings of Treasury and mortgage bonds roll off at maturity, a process known as “quantitative tightening,” (QT), after it hit a record size of nearly $9 trillion under two years of “quantitative easing,” (QE). “This is not QE or QT. This is none of those,” said Thomas Simons, money market economist at Jefferies, in a phone interview. “This is the first, real serious beginning round of exploring if they might do something. This is quite far from an announcement. It is more like fact finding.” Still, Simons said if the plan takes shape, it could help improve …

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