Week Ending: August 21, 2026
Buyback Ballyhoo
Duration-Adjusted Size Of Asset Purchase Programs*
Sources: Federal Reserve Bank of New York, U.S. Treasury, Hanson (2014), Li & Wei (2013), Gulati & Smith (2022), Payden Calculations
*Size of asset purchases measured in 10-year Treasury equivalents; 2026 forecast assumes a cap of $5 billion per operation at the current pace
This week, Treasury Secretary Scott Bessent announced that the U.S. Treasury will “at least double" its 20- to 30-year Treasury buyback cap from the current $2 billion per operation. Yields on 30-year Treasury bonds rallied more than 10 basis points on the news. However, we think the impact may be short-lived. First, with long-end yields well above the Fed funds rate, it makes sense for the Treasury to borrow at a cheaper cost by issuing more T-bills. Second, rather than being a stimulus program like quantitative easing (QE), which involved the Fed creating new reserves to buy longer-end assets, the Treasury will still have to issue the same dollar amount of debt to finance federal borrowing, just at different maturities. And third, but the Treasury is removing duration from the market, just like QE, you say? After adjusting for duration, the Fed’s QE programs were much larger. And the yield impact? Inflation, growth, and the size of the deficit will matter more for long-end rates than small changes in the Treasury debt profile. Ultimately, to keep a lid on rates, policymakers need to rein in inflation, cut government spending, raise revenues, or…all three. Until that happens, Treasury will still need to finance a budget deficit that’s 6% of GDP...at elevated yields.
Highlights of the Week:
High Yield: The new issue market is likely to stay closed until after Labor Day, and trading volumes have started to decline ($9.3 billion on Wednesday versus a year-to-date average of $11 billion). While investors may hope for a quiet end to the summer, this is also a period when volatility can intensify because of lower liquidity. Investors should stay focused and resist the temptation to give in to the late-summer malaise.
Corporates: With one week left, August has already been the busiest month on record for the primary market, with $153 billion, driven by Google's $25 billion 10-tranche deal. The seemingly endless wave of AI and hyperscaler issuance continues to pressure spreads, with the technology and communications sector the quarter's worst performer on both spread and total return.
Municipals: For the week ending August 19th, LSEG Lipper reported $839 million of inflows into weekly-reporting municipal funds, extending the inflow streak to 18 consecutive weeks, though flows remained below the 25-week average. ETFs accounted for nearly all of the inflows (+$830 million), while open-end funds were flat (+$9 million). Year-to-date inflows now total $65.5 billion, the second-highest on record for the comparable period, trailing only 2021.
Equities: The U.S. equity market pulled back from record highs this week, ending lower as mixed retail earnings and renewed inflation concerns weighed on investor sentiment. Most sectors posted negative returns, with industrials, technology, and utilities the weakest performers, while health care, energy, and materials were the strongest.
Disclosure: This material reflects the firm’s current opinion and is subject to change without notice. Sources for the material contained herein are deemed reliable but cannot be guaranteed.
