MS Jackson Hole If you want to say less, say less

M August 23, 2026 10:00 PM GMT

Federal Reserve Monitor | North America Morgan Stanley & Co. LLC Idea

Michael T Gapen Chief US Economist

Jackson Hole: If you want to say

Economist We expect silence on the near-term outlook for monetary policy, Arunima Sinha Global Economist including the expansion of the Treasury buyback program. The

policy question at the symposium is what monetary framework Heather Berger Economist captures the benefits of financial innovation while staying

resilient to rapid movements of near-money instruments. Lingdi Xu Economist

Key Takeaways The Treasury buyback announcement appears to reflect heightened focus on preventing disorderly long-end rate increases, not improving liquidity.

The symposium will focus on how financial innovation in payments systems changes the architecture in which monetary and financial markets operate.

For important disclosures, refer to the Disclosure Section, located at the end of this report.

Treasury buybacks and the limits of long-end intervention What did the Treasury announce?

On August 19, Treasury Secretary Bessent announced that the Treasury would "at least" double the maximum size of its liquidity-support buybacks of longer-dated nominal Treasury securities, raising the cap from $2bn to at least $4 billion per operation in both the 10–20y and 20–30y sectors.

The larger operations will begin on September 9 and remain in effect through the end of the current refunding quarter on November 4, when presumably the Treasury will provide updated guidance. Treasury attributed the change to strong participation in recent long- end operations and a desire to provide greater liquidity support in these sectors.

As we discuss in more detail below, the timing of the announcement was notable. The change was made outside the normal Quarterly Refunding schedule, making the timing of the change itself an important feature of the announcement, in our view.

Our take: Heightened focus on long-term yields

In our view, the buyback announcement is best understood as a reaction to rising long- term Treasury yields rather than as a routine adjustment to debt-management policy. Normally, Treasury buybacks are conducted with an eye toward improving liquidity in off- the-run Treasuries and constraints on dealer balance sheets. Buybacks are normally conducted in a way that does not alter the outstanding maturity of Treasury debt (e.g. purchases of off-the-run securities are offset by issuance of on-the-run issuance of similar duration). Announcements of changes to the buyback schedule are normally made during the Quarterly Refunding process, part of the Treasury's historical preference for "regular and predictable" issuance patterns.

Rising long-term yields likely prompted the expansion in buybacks

We see the decision to expand long-end buybacks outside the normal Quarterly Refunding as unusual in this regard, and see the announcement as carrying more informational content than the size of the purchases alone would suggest. Put simply, we interpret the move as evidence that Treasury had become uncomfortable with the speed and character of the rise in long-term interest rates. Ultimately, the Treasury's ability to influence long- term rates is limited, but alterations to buybacks can provide an effective circuit breaker against a disorderly rise in yields, akin to central bank intervention in currency markets. It may be the case that some steepening of the yield curve is acceptable, or even useful if it tightens financial conditions during a period of above-target inflation, but the timing and content of the announcement suggests that we reached a point beyond which further increases in long-term interest rates was becoming counterproductive. We do not know for sure, of course, but the context of the announcement points in this direction.

A Treasury reaction function and a Treasury put?

The distinction between signaling and effect is important in our thinking. It goes without saying that the additional buybacks are small relative to the stock of Treasury debt and