Why Wall Street is Dumping ETFs – September 30th

Treasury’s $1 Trillion Wild Card Changes the Bond Trade

Last week’s Treasury buyback announcement moved yields for about 36 hours before the market decided the math didn’t work. The Treasury surprised markets by doubling the size of bond buybacks, but the impact on yields was short-lived because of skepticism over the firepower available to Secretary Scott Bessent. That skepticism met a direct rebuttal Monday morning.

The Treasury could use its near $1 trillion General Account to help fund its recently announced plans to increase purchases of government bonds, according to two senior Treasury officials speaking to CNBC. Using the TGA would provide the Treasury with considerable firepower to influence long-term bond yields. The long end finally listened. The 10-year Treasury yield fell about 4 basis points to around 4.70%, while the 30-year, which last week hit levels not seen since 2007, slipped about 4 basis points to around 5.23%.

That 2007 comparison is the number to hold onto. The 30-year Treasury yield reached 5.31% on August 17, the highest close since June 2007, then fell to about 5.19% two days later when Bessent made the original buyback announcement. It spent the rest of the week erasing those gains entirely. Monday’s TGA report is attempt number two at putting a ceiling on duration, and this time the potential ammunition is an order of magnitude larger.

The report follows Treasury’s move last week to at least double the maximum size of per-operation bond purchases for longer-dated securities, raising the ceiling from $2 billion to at least $4 billion for the 10-to-20-year and 20-to-30-year portions of the market. Treasury set the window for those larger operations to begin September 9 and close November 4. What the market lacked was confidence that Bessent had the cash. That confidence is now partially restored, though officials did not say how much of the TGA would actually be used.

Unlike the Federal Reserve’s ability to create money, Treasury funds repurchases either by drawing down cash already sitting in the Treasury General Account or by issuing more short-term bills, effectively swapping long-term debt for shorter maturities. This strategy sees Treasury directly influencing financial conditions, a role traditionally held by the Fed. That distinction matters enormously for how you position heading into Friday.

The Week’s Trading Plan

TLT. As of August 24, TLT is trading around $82.50, with a 52-week range spanning from $81.17 to $92.19. The fund is well off its highs and has been grinding near multi-year lows. Monday’s TGA report is a genuine catalyst for a bounce, but only if the bid holds through the week. A close above $83.50 would be the first meaningful technical confirmation that last week’s washout was the low.

Curve trades. The TGA story is most directly bullish for the ultra-long end. A 30-year yield north of 5.20% with Treasury actively signaling willingness to deploy its cash balance is an asymmetric setup. The risk is that any sustained use of the TGA may later be rebuilt with bill issuance, which steepens the front end and complicates the picture for 2s-10s.

Gold. Gold December futures opened around $4,681 per troy ounce on Monday and traded up to roughly $4,691 per troy ounce. The metal is tracking the fiscal-dominance thesis precisely: Treasury operating in the bond market like a quasi-central bank, US federal debt above $40 trillion, and a new Fed chair whose communication style remains an open question.

Jackson Hole, Friday. Federal Reserve Chair Kevin Warsh will deliver his keynote address as Fed Chair on Friday, August 28, just three weeks before the September FOMC meeting. The Treasury’s intervention in the bond market raises the importance of Warsh’s Jackson Hole comments. If Warsh draws a clear line between monetary policy and Treasury’s duration management, TLT fades and the TGA trade loses its anchor. That is the primary risk to hold this week.

Monday’s session is a positioning session, not a confirmation. The TGA signal is credible enough to build a lean toward TLT and gold, but the size and structure of any actual deployment remain unknown. Wait for Warsh before committing to size.