U.S. Treasury officials are increasing buybacks of longer-dated debt as the 10-year yield again approaches levels that threaten to raise borrowing costs across the economy, but Arthur Hayes, co-founder of BitMEX, argues that the initial measures are too small to create a durable cap on yields. His outlook for Bitcoin rests on whether the Treasury continues with limited interventions, expands them into an explicit yield-control program, or pairs them with fiscal restraint.
The Treasury Department announced on Aug. 19 that it would add $20 billion in long-dated Treasury buybacks during the following quarter. Buybacks allow the government to repurchase outstanding securities, potentially supporting prices and lowering yields in parts of the market. The 10-year yield declined after the announcement but rose back above its pre-announcement level within roughly one trading day, according to Hayes’ account.
That brief response reflects the scale of the challenge. U.S. national debt passed $40 trillion in August, while the newly announced buybacks represent a small fraction of the Treasury market. With the 10-year yield near 4.70%, financing conditions remain restrictive for mortgage borrowers, companies issuing bonds, and the federal government itself.
Long-term Treasury yields drive borrowing costs
The 10-year Treasury yield is a benchmark for much of the U.S. credit system. Banks, mortgage lenders and corporate borrowers commonly price longer-term loans with reference to Treasury rates, adding a premium for risk and operating costs.
A rise toward or above 5% would therefore reach well beyond the government’s own interest bill. Thirty-year fixed mortgage rates, corporate debt costs and some consumer lending rates tend to move higher when longer-term Treasury yields climb. Higher rates can also place pressure on government finances as older, lower-yielding debt matures and must be refinanced at current market rates.
Hayes described the buyback increase as an attempt to ease pressure at the long end of the Treasury curve without relying on the Federal Reserve to cut policy rates or resume large-scale quantitative easing. He argued that political sensitivity around household living costs could limit the Federal Reserve’s appetite for more overt monetary easing if inflation remains a concern.
Treasury-led measures, in that view, offer Washington a more politically manageable way to address rising yields. Yet the market’s rapid reversal after the Aug. 19 announcement suggests that modest purchases alone may struggle to alter the outlook for a market measured in tens of trillions of dollars.
The 2023 bill strategy released reverse-repo cash
Hayes compared the current approach with the Treasury’s issuance strategy in late 2023 under then-Treasury Secretary Janet Yellen. The Treasury increased its use of short-dated bills while reducing reliance on longer-maturity debt, a decision that coincided with a large drawdown in the Federal Reserve’s overnight reverse repurchase agreement facility.
The reverse repo facility, usually called the RRP, enables eligible money-market participants to place cash with the Federal Reserve overnight in exchange for securities. In late 2023, approximately $2.5 trillion sat in the facility, according to Hayes.
As Treasury bill yields rose above the RRP rate, money-market funds had an incentive to move cash from the Fed facility into bills. Hayes estimated that the shift released roughly $2.4 trillion from the RRP into the financial system’s collateral and funding channels. By Jan. 20, 2025, when Scott Bessent took office as Treasury secretary, the RRP balance had fallen to about $100 billion from roughly $2.5 trillion.
During that period, the federal funds rate remained near 5.3%, while the 10-year Treasury yield retreated from the 5% area. Hayes also linked the RRP drawdown with gains in the Nasdaq 100 and Bitcoin, assets that have often responded positively when dollar liquidity expands.
The comparison has limits. The RRP facility contained an unusually large pool of cash that could rotate into Treasury bills. With its balance now far lower, the Treasury has less scope to repeat the same liquidity release through short-term issuance alone.
Hayes sees three policy paths
Hayes set out three possible responses if the 10-year yield returns to 5% and policy makers seek to contain the move.
The first is fiscal restraint, including reduced federal spending or measures that narrow borrowing needs. Hayes called this the most negative path for assets sensitive to dollar liquidity, since a smaller fiscal impulse would reduce the flow of government funds into the economy and financial markets.
The second is a more forceful intervention resembling the Bank of Japan’s yield-curve-control framework. Under that approach, officials would commit to buying unlimited quantities of longer-dated Treasuries whenever yields moved above a defined level, such as 5%. Such a pledge could suppress yields if markets considered it credible, though it would also invite traders to test the government’s willingness to keep purchasing bonds in size.
Hayes’ base case is a middle route: gradually larger buybacks supplemented by other Treasury liquidity tools. He said this would remain the likely outcome unless the ICE BofA MOVE Index, a measure of expected Treasury-market volatility, rises above 130. The index had recently climbed above 73, based on the figures he cited.
One option is a drawdown of the Treasury General Account, the government’s main operating cash balance at the Federal Reserve. Hayes put that balance at around $1 trillion. Spending down the account would inject cash into the banking system, though it would also reduce the Treasury’s liquidity buffer and eventually require renewed borrowing or tax receipts to replenish it.
He also pointed to discussion of removing the cap on the Federal Reserve’s FIMA repo facility. The facility allows eligible foreign official institutions to obtain dollars against Treasury collateral rather than selling Treasuries outright. A larger or uncapped program could reduce the need for major foreign holders to liquidate bonds during periods of dollar funding stress.
Bitcoin outlook depends on the response
Hayes projected that Bitcoin could reach $126,000 by year-end if Treasury actions add liquidity and prevent a sustained jump in long-term yields. That forecast is conditional rather than a direct consequence of the announced buybacks: the current program’s modest size and the limited initial yield reaction leave substantial uncertainty over whether officials will escalate.
The more immediate market signal lies in the Treasury market itself. If buybacks expand, the Treasury General Account declines, or the FIMA facility is broadened, those steps would indicate a stronger effort to keep funding conditions from tightening. A move toward fiscal restraint, by contrast, would weaken Hayes’ liquidity-driven case for Bitcoin and other risk-sensitive assets.
Inflation could also constrain the available policy choices. A renewed acceleration in consumer prices would make it harder for the Federal Reserve to ease monetary policy, while aggressive Treasury intervention could face greater scrutiny if it were seen as working against inflation-control efforts.
To see how rate moves and Fed decisions reshape bitcoin, explore this analysis next.
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