Gold, stocks, and UST surged on Trump’s back-door YCC plan; USD slumped. Will it work?
Trump & Co. can’t resolve structural issues with cyclical fixes.
Trump has to exit from his Iran war mess gracefully rather than stage an imaginary takeover of the SOH to bring oil, inflation expectations, and bond yields down.
The Trump administration has to roll over ~$10T in debt at lower borrowing costs (coupon rate) in the coming months desperately.
On Wednesday, gold and USTs surged, while US bond yields and the USD slumped as the US Treasury (TSY) Secretary Besant officially announced the intention of the US TSY to double the buyback of longer-term (10-30Y) USTs from the present $2B/operation to at least $4B/month per operation for Sep-Nov '26 (refunding QTR). The US TSY may also indicate the size of the next tranche of bond buying for the next fiscal refunding quarter on November 4, 2026. Overall, the program is officially the TSY Liquidity Adjustment Facility (TLAF), but the real purpose is to manage longer-term bond yields (10-30Y); i.e., it’s a form of back-door YCC.
As the debt manager of the US government, the US TSY has to ensure lower borrowing costs for the government as per evolving market/financial situations. Due to Iran war uncertainty and the SOH (Strait of Hormuz) deadlock, oil & gas, energy, and various other food/fertilizer commodities are quite elevated, resulting in higher inflation expectations and higher bond yields. Also, the Fed is employing ultra-hawkish jawboning for a potential interest rate hike of +0.25% by Dec '26. As a result, the US10Y bond yield was hovering around +4.75%, while the 30Y bond yield was around +5.30%; both are at the highest since the pre-2007 GFC (+5.2%). The Trump admin also has to roll over ~$10T of debt in the coming months at lower borrowing costs (coupon rate).
On the other side, Trump is still struggling for a face-saving exit from his Iran war mess ahead of the Nov. '26 midterm election. History shows that, whenever the US10Y bond yield sustains around the +5.00% red line, the US economy faces an inevitable recession in the next few years. Whenever the US 10Y TIPS (inflation-adjusted) bond yield (now around +2.41%) approaches the 2.50-3.00% red line (real rate of interest/borrowing costs), an economic recession follows for the debt-heavy US economy, which operates like a jumbo Ponzi scheme. The US economy is not designed to withstand much higher real borrowing costs (2.50-3.00%) for too long.
Official statement by the US TSY: August 19, 2026
Treasury Announces Increased Sizes of Nominal Long-End Liquidity Support Buybacks Beginning September 9
The U.S. Department of the Treasury is increasing, by at least double, the size of liquidity support buyback operations for longer-dated nominal coupon securities (the 10-year to 20-year sector and the 20-year to 30-year sector). The current maximum size of $2 billion per operation will be at least $4 billion per operation.
This change is effective September 9, 2026, and will be in effect for the remainder of this refunding quarter (through November 4, 2026). The Treasury will provide more information about future buyback sizes at the next Quarterly Refunding, scheduled for November 4, 2026.
This increase in buyback operation sizes reflects Treasury’s desire to provide greater liquidity support in longer-dated nominal sectors where there is consistently strong sponsorship from market participants, as evidenced by the significant volume of high-quality offers Treasury routinely receives in longer-dated buyback operations. An updated tentative Treasury buyback schedule will be released at a later date.
Off-the-Run Relief: The Treasury is purchasing older, less frequently traded, seasoned debt ("off-the-run" securities). This narrows the pricing gap against newly auctioned benchmark bonds to normalize liquidity.
Effective Timeline: The new baseline capacity goes into effect on September 9, 2026, running through the end of the current refunding quarter on November 4, 2026.
No Net Debt Change: The Treasury confirmed that this mechanism does not alter its baseline issuance size or regular auctions; it is a balance sheet management strategy funded via short-term cash reserves or bill management.
History of the US TLAF Program: Not the First Time
The US TSY program is a structural plumbing tool (under the Liquidity Adjustment Facility—TLAF) designed for market liquidity, not officially any monetary stimulus (QE-Lite) or backdoor YCC (Yield Curve Control) mechanism. The US TSY bond TLAF operation is not something new. The current buyback framework officially began in May 2024. It was the first regular Treasury buyback program in over 20 years (since 2000–2002).
Routine Operations: The NY Fed has been running these operations (on behalf of the US TSY) weekly for over two years to manage bond yields. The recent announcement was simply an increase in the maximum size of existing operations, not the launch of a new program.
The 2000–2002 Debt Buybacks: The U.S. government was running temporary budget surpluses. The Treasury conducted a large series of bond buybacks to prevent the market for long-dated bonds from drying up completely. They bought back high-interest, older bonds to smooth out the national debt profile.
The 2020 COVID Liquidity Crash: In March 2020, global panic caused a unique crisis where investors dumped even "risk-free" U.S. Treasuries to hoard pure cash. The bond market completely froze, and yields spiked disorderly. The US TSY and the Fed launched a coordinated backstop. The Treasury provided equity capital from the Exchange Stabilization Fund, which the Fed used to establish massive emergency lending facilities (like the PMCCF and SMCCF) to buy up corporate debt and keep credit flowing, while the Fed launched massive, open-ended QE to absorb the Treasury sell-off.
The Besant Put (as a part of Trump’s TACO trade/strategy)—Trump Always Chickens Out
April 9, 2025: Trump & Co. blinked and paused the implementation of Trump’s Liberation Day chaotic tariffs (after the April 2 announcement). The chaos in the $30 trillion U.S. bond market was so severe that it ultimately forced the Trump administration to capitulate as Wall Street crashed, while bond yields soared.
The White House Intervened: While political pressure and stock market drops did not move the Trump administration initially, the threat of a catastrophic, disorderly freeze in the sovereign bond market spooked the President. On April 9, 2025, Trump publicly declared it a "great time to buy stocks" and officially paused the tariff increases to allow for global negotiations.
The Fed/TSY has to ensure financial stability, besides price & employment stability, at any cost.
The immediate market collapse following the April 2, 2025, "Liberation Day" tariff announcement serves as the exact playbook for why the Treasury and the Fed intervene today. That event triggered the 2025 stock market crash, erasing $6.6 trillion in U.S. equity value in just 48 hours and causing a terrifying, highly unusual revolt in the U.S. bond market. The April 2025 crisis taught Treasury Secretary Scott Bessent a permanent lesson: the bond market is hyper-sensitive to policy shocks, and a disorderly yield spike will instantly freeze the US and also the global financial system (on both sides of the Atlantic as well as the Pacific).
When yields threatened to unhinge again this week, the Treasury didn't wait for a stock market crash or a White House policy pivot. They immediately deployed their operational plumbing/policy tool—doubling the buyback. program to $4 billion—to act as an explicit, preemptive circuit breaker before the ghosts of the April 2025 bond revolt could return.
Beyond the current buyback scaling, a striking and historic example of joint intervention by the BOJ, U.S. Treasury, and the Federal Reserve (NY Fed) occurred in late July 2026 to halt the collapse of the Japanese Yen (JPY). The NY Fed has to sell ~€5-10B to buy JPYs, while the BOJ spent ~$55B to buy JPYs. The US TSY, led by active participation of Besant, has to intervene to fund the JPY buying; otherwise, the BOJ may have to sell USTs in a meaningful way for USDs. The BOJ spent almost $85B in two days of USDJPY operation to bring it down from around 164 to 154.
These interventions exist to ensure financial stability at any cost during any economic crisis period.
These examples highlight an important financial reality: whenever the orderly "plumbing" of the global fixed-income market breaks down, the Treasury acts as the tactical (fiscal) shield while the Fed acts as the monetary engine.
Full Transcript of Trump’s Comments on US TSY Intervention: August 19, 2026
---It's very sad. Every time we do great, we announce great numbers, and the interest rates go up, and they go up because they want to stop inflation—they should go down because the country is strong. You know, I see countries like Switzerland, where they have the number one lowest interest rates, half a percent. And we pay three and a half percent—and yet, if we stop doing business, for instance, I have the absolute right to cut off all business with a country like Switzerland, like anything. So why are they prime if I can cut off the business and they are no longer functional? And yet they're considered to be an elite country. And I don't want to single them out because there are 60 countries like that. They live off the United States. So why are we paying higher interest rates than them?
You know, in the old days, we used to pay the lowest interest rate no matter how we were doing because we sort of generate for the whole world. And I want to see where interest rates are, and I have to tell you, we have a wonderful Fed chairman. I think he's doing a great job. The problem is he has a board, and it's a political board. People put in by Obama, Biden, and me. And, uh, there are quite a few members still left, as you understand. And so they vote to raise interest rates. I don't know if they're doing it because they think they're doing a good thing or because they like the politics of it. But my point is—years ago, 25 years ago, when the country announced good numbers, interest rates went down because we had a stronger country. Now, when we announce --- good numbers, the better they are, the worse it is for interest rates. So we could be, we could have a GDP of 10 times. You know, they say, "Oh, it's going to be three times or 4.1." Uh, we could have a GDP of 10, 12, or 15 times if they just left us alone. Let us let the rates go down. We should pay the lowest interest rates.
You know, every point of interest is 600 billion—think of that. Every point of interest is 600 billion. Two points mean we make a fortune, but we keep driving it up—it's a very unfair system. And I've said it for a long time now. When our country does well, interest rates should go down. I mean, every time I hear a country is doing well, I say, "Oh, that's too bad because they lift interest rates." They should drop interest rates because it means we have a strong country, and it's all based on credit, meaning good credit, and we have the best credit, and we'd pay off the debt very easily and very quickly. But if somebody's paying half a point, we should be paying half a point, not somebody else. Right now, I think Switzerland has the lowest again. And I don't want to single them out, but if you take our business away from Switzerland, they have problems. So why are they paying half a point, and we're paying much more than that? Does that make sense to anybody? I mean, it seems pretty simple to me, but it's a killer.
You know, I almost like to hear bad numbers. I'm saying I hope we have bad numbers today. Interest rates will go down. It doesn't make sense. When our business is good, we should lower interest rates. And then you want to build America. You're going to see a building like you've never seen. We're doing great even despite what's happening with interest rates.
No, I don't think so (on whether Americans should be concerned about this volatility in the bond market) because, as I said, our country is doing so well despite interest rates. We have interest rates that are artificial; they're actually artificially high. They raise them for no reason. And you can't go out to the market when you have a Fed that's raising interest rates. You can't say, "Oh, I want to pay three points less than what the Fed says you're supposed to be paying. " So, no, I don't think so at all. I think we have a very powerful country, and we're powering through these ridiculous interest rates. They're ridiculous.
Look, when our country is strong, interest rates should go down. When our country is weak, frankly, they should go up. But this country is strong. They've never had—there's never been in history the kind of money coming into a country we have right now. Trillions and trillions of dollars are being invested in plants, factories, everything.
Everything you can think of. We're the hottest country in the world. We are, by far, and I, you know, I said it a hundred times, am the king of Saudi Arabia. Many, many people said two years ago, three years ago, your country was dead. Now you have the hottest country in the world. That's why we have the hottest country in the world, and these people are helping us a lot. Thank you.
In brief, Trump’s random and often nonsensical comments show that he & his admin will try to ensure the lowest bond yields for the US at any cost. But in a modern market economy, that can’t just be possible unless you ensure lower inflation & inflation expectations structurally. But Trump’s chaotic policies, from trade/tariffs to Iran and the immigration war, often boost higher inflation expectations. Along with Trump-induced policy & supply uncertainty, Trump’s fiscal policies like tax cuts, helicopter money to newborn Americans ($1000 IN Trump DEMAT A/C), and AI CAPEX are also boosting inflation, making the Fed’s job harder.
Trump and the Fed are again diverging even under new Fed Chair Warsh.
Contrary to Trump’s idiotic thought process, as a central bank, the Fed has to act (hike) to curb the demand side of the economy to some extent so that it can match the presently constrained supply capacity of the economy (whatever may be the underlying reasons) and bring inflation down. Although Fed Chair Warsh may not actually hike rates by 25 bps in Dec '26, even as an insurance to prevent further greater hikes in the future, Warsh/the Fed may continue hawkish jawboning amid transitory (?) hotter inflation and a stable, but not solid, labor market (employment situation).
Summary Analysis
If Trump can’t ensure higher supply through appropriate policy (like oil under the present Iran war), inflation is bound to be elevated. And as a central bank, the Fed is bound to hike or engage in constant hawkish jawboning to keep bond yields higher for tighter financial conditions (through higher borrowing costs). Thus, expect the US 10Y bond yield to hover between 4.80% and 4.40% and 4.00% in the coming days/months, with upside risk if Trump can’t have a face-saving exit from his Iran war mess soon.
The US is now paying over 18% of its core tax revenue as interest on federal public debt of over $40T. This is significantly higher than the pre-COVID average of below 10% and the pre-Trump 1.0 level of around 7%. China still pays around 7% of its combined tax revenue as interest on combined public debt. All this means USD may soon theoretically turn into ‘toilet paper’ for excessive money printing/supply. But in reality, despite higher supply, the demand for USD from the external world (from trade settlement to terrorist activities) is almost unlimited due to its status as the safest global reserve currency. Thus, the USD is the biggest weapon for the never-ending US hegemony.
But the world is now also increasingly diversifying/shifting from a USD-heavy ecosystem to another BRICS system led by Chinese Yuan dominance. China may turn out to be the world’s #1 superpower by 2050-75 without even firing a bullet or waging a war in recent times. China is now accumulating gold at a record pace to ensure confidence in its currency so that it can challenge the global dominance of the USD and the increasing US tendency to weaponize the USD as a tool to score geopolitical rivalry/issues.
The increasing tendency of the US to lead geopolitical tensions, trade fragmentation, and sanctions is resulting in a gradual divergence from USD assets globally. Trump knows this very well, and thus he is embarking on various rhetoric and even wars to ensure the global reserve currency status of the USD remains sacrosanct. Trump views the importance of the USD as a global reserve currency as paramount & monumental; the loss of the USD as the #1 global reserve currency is more than losing a war on the battlefield. Trump also regularly threatens any country, even trying to think about a USD alternative with 500% tariffs.
Conclusions
Trump & Co. can’t resolve structural issues with temporary/cyclical fixes. After some knee-jerk reaction, US bond yields are bound to revert to the elevated trajectory unless Trump removes policy uncertainty like the Iran war and the SOH deadlock. Trump often mentioned and compared China in almost all of his media bytes. Trump should also look at China’s 10Y bond yield, now around +1.70%, at a multi-year low vs. the US’ +4.70%, at a multi-year high. China’s core inflation (CPI) is now around +1.00% vs. the US’ +2.70% on average; i.e., real bond yield is around +0.70% vs. +3.00% (CN vs. US). Trump should also focus on increasing the supply capacity of the US economy like China, including the creation of industrial & logistical infrastructure, so that the US can compete with the #2 superpower China in terms of quality & quantity (products & services). Trump and every other US president have to focus on the domestic economy rather than constant external geopolitics and direct/indirect (proxy) wars (UKR to Iran).
Technical outlook: Gold, USDJPY, EURUSD, and GBPUSD
Looking ahead, whatever may be the narrative, technically gold ($4521) now has to sustain over 4530 for a further rally to 4575*/4600-4650/4725 and 4775/4800-4825/4900 in the coming days; otherwise, sustaining below 4520, gold may again fall to 4470/4450 and 4410/4375-4350/4325 and 4295/4275*-4175/4155 and 4090/4050-4050/4000*/3970 and 3925* in the coming days.
Technically, USDJPY (158.75) now has to sustain about 157.00-158.50 for a further rebound to 160.25/160.75-161.00*/164.25, and only sustaining above 164.50 may further rally to 165.00-168.00 in the coming days. On the other side, sustaining below 157.00 may further fall to 154.90*, and, sustaining below that, may further fall to 152.00-149.80 in the coming days.
Technically, EURUSD (1.16800) now has to sustain above 1.17200 for a further rally to 1.17900/1.18900-1.19200/1.21000 in the coming days; otherwise, sustaining below 1.17000 may cause it to fall to 1.16300/1.16000-1.14900/1.13200 and 1.12900/1.12500-1.11700/1.11400 and 1.10700-1.10500 in the coming days.
Technically, GBPUSD (1.36500) now has to sustain over 1.37000 for a further rally to 1.38000-1.38600; otherwise, sustaining below 1.36800 may cause it to fall to 1.36000/1.35300-1.35000/1.34400 and further to 1.33800/1.33400-1.32600/1.32200 and 1.31300 in the coming days.
