Key highlights:

  • The US Treasury plans to buy back $12.5 billion of its debt today
  • Bitcoin pumped by 25% when the buyback plan was revealed in August
  • Grayscale said the asset's correlation with tech stocks is fading while its gold link strengthens

The US Treasury is preparing to buy back up to $12.5 billion of its outstanding government debt later today, according to reports.

This buyback operation is far larger than what the agency usually carries out. Experts are watching this process, especially as the same policy contributed to a 25% Bitcoin price rally when it was initially announced.

Treasury to make an unusually large debt buyback

A routine Treasury buyback is usually around $2 billion, which means today's planned purchase is more than six times the normal amount. Large debt repurchases like this inject liquidity into fixed-income markets, and that kind of liquidity boost could be bullish for risk assets like Bitcoin.

The buyback comes at a pivotal time for bond markets. The benchmark 10-year Treasury yield eased to around 4.8% on Thursday after hitting 4.817% a day earlier, its highest level since November 2023. 

US government bonds 10-year yield

US Government Bonds 10YR Yield. Source: TradingView

This also comes just ahead of Friday's nonfarm payrolls report. This would shed more light on sticky inflation, rising oil prices, and government borrowing needs.

A similar move sparked a 25% BTC rally in August

On August 19, Treasury Secretary Scott Bessent announced that buyback operations FOR bonds in the 10-to-20-year and 20-to-30-year maturity ranges would double in maximum size. Bitcoin responded to that announcement with a 25% rally over the weeks that followed. It was also its strongest monthly run in years.

That August move mattered because it targeted the long end of the yield curve, at a time when 30-year yields had spiked to 5.34%, their highest level in 19 years. 

The Treasury signaled it was willing to support a market under strain by pledging to absorb that share of long-duration debt. Investors read that signal as a sign that policymakers were prioritizing liquidity and market functioning, which then prompted a positive run in the crypto market. Bitcoin ETFs posted their best month of the year in August as a result.

Treasury buybacks were revived in 2024 after a two-decade pause. It was designed to improve liquidity in thinly traded securities by swapping them out for newer issuance at current rates.

Shifting correlations add to the bullish case for Bitcoin

In another development, Grayscale flagged a shift in how the coin is trading when compared with other markets. In a post on X, the firm said its 90-day correlation with the Nasdaq Composite has dropped from 60% to 33%. They also added its correlation with gold has jumped from around zero to close to 50%.

"Rising debt, persistent deficits, and higher yields are pushing investors to alternatives like Bitcoin and gold," Grayscale said. They also added that the asset can serve as a "scarce" and "liquid" alternative as debate on the long-term value of fiat currencies continues.