This is a sign the US could be heading toward YCC

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Treasury just doubled its bond buybacks.

I don’t think this is YCC yet.

But it could be a sign that we’re heading in that direction.

First, what is YCC?

Yield curve control means the government decides that a certain Treasury yield is too high and basically puts a ceiling on it.

Say the government decides the 10 year Treasury cannot go above 4.5%.

If investors start selling bonds and push the 10 year toward 4.6%, the central bank steps in and buys bonds.

If that isn’t enough, it buys more.

And more.

The goal isn’t to make money.

The goal is to keep the yield from going above the target.

Japan did this for years.

The US isn’t doing that right now.

The Fed isn’t announcing a target.

There is no official ceiling on the 10 year or 30 year.

But look at what Treasury is doing.

The 10 year is around 4.67%.

The 30 year is around 5.21%.

Here is how Bessent’s Treasury QE works:

– Step 1: Bessent issues UST bills.
– Step 2: The Fed prints money to buy them.
– Step 3: Bessent uses the proceeds to buy long-term USTs.

They don’t call it QE because the Fed doesn’t intervene directly in the long end…

Meanwhile the Fed is buying UST bills at a faster pace than during Covid.

I’m pretty sure we will effectively get YCC… just with a different name tag.

Treasury just doubled its bond buybacks, with more buying focused on longer dated Treasuries.

That is not YCC.

But it is a sign that Washington is becoming more concerned about what happens if long term yields keep climbing.

And the reason is obvious.

The US now has more than $40 trillion of debt.

Higher yields mean higher borrowing costs.

The government can tolerate higher rates for a while.

But there is a point where the interest bill becomes a serious problem.

So imagine the next step.

Long term yields keep rising.

Treasury buys more bonds.

Yields fall.

Then yields rise again.

Treasury buys even more.

Eventually the market starts thinking:

“They aren’t going to let these yields keep rising.”

That’s when you start getting something that looks a lot more like YCC.

It doesn’t have to start with an official announcement.

It can start with the government becoming increasingly aggressive whenever the long end of the curve gets uncomfortable.

And that’s why I’m watching this.

Gold just broke $4,550.

Gold doesn’t care whether you call this QE, a buyback program or debt management.

If investors start believing the government will eventually have to suppress long term yields because it can’t afford much higher borrowing costs, that’s a very different environment for gold.

So no, the US hasn’t started YCC.

But today’s move could be one of the signs that eventually pushes it there.

The question is how far Treasury has to go before buying bonds stops being a liquidity tool and starts becoming a yield ceiling.

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