the us treasury department on friday said it plans to start talking with primary dealers in late october about the potential for it to begin buying back some of its older debt to help stave off market dysfunction the plan if adopted would mark a milestone in the roughly 226 trillion us government debt market the world’s largest by providing a new tool for the treasury to help aid market liquidity a source of growing concern see treasury’s yellen worried about ‘loss of adequate liquidity’ in us government bond market the proposal comes after the bank of england was forced to step in with an emergency program to temporarily buy its government debt and to give uk pension funds more time to unwind soured bets the volatility erupted as global central banks have worked to fight soaring inflation by ending easymonetary policies that prevailed for much of the past decade importantly unlike in the uk the new treasury proposal is separate from the federal reserve’s plans to sharply cut the size of its balance sheet by letting its holdings of treasury and mortgage bonds roll off at maturity a process known as “quantitative tightening” qt after it hit a record size of nearly 9 trillion under two years of “quantitative easing” qe “this is not qe or qt this is none of those” said thomas simons money market economist at jefferies in a phone interview “this is the first real serious begging round of exploring if they might do something this is quite far from an announcement it is more like fact finding” still simons said if the plan takes shape it could help improve liquidity “where it isn’t very good” the treasury asked dealers for feedback by monday oct 24 about a new tool to buyback its offtherun securities each year and if it would “meaningfully improve liquidity” reduce volatility in tbill issuance and help address other market concerns the idea would be to sop up “unwanted supply” of offtherun securities that can become harder to trade once they are replaced with newer treasury issuance or ontherun securities “it’s a supply management program really over the course of the year” simmons said of the treasury proposal “it looks like a tool they could use over the long run and aim liquidity where it’s impaired” the treasury has been meeting quarterly with the dealer community to solicit feedback on market functioning for years buybacks have been discussed at previous meetings in august 2022 and february 2015 is a ukstyle debt crisis brewing in the us the federal reserve began to pick up the pace of shrinking its balance sheet this fall by letting more bonds it holds mature it also no longer has been an active participant in the secondary market for treasury securities raising concerns about potential havoc and who might step up as an anchor buyer read the next financial crisis may already be brewing but not where investors might expect while the fed’s holdings of treasury securities would be considered offtherun the treasury proposal “would have no relationship whatsoever to what the fed has been doing” to shrink its balance sheet stephen stanley chief economist at amherst pierpoint securities told marketwatch recent volatility in the uk gilts market might have been a catalyst for the us treasury to put buybacks back on the agenda stanley said but he also wasn’t alarmed by its reappearance as a topic of discussion “this is the main way the treasury formally interacts with its primary dealers” stanley said simons at jefferies went a step further arguing that if the bank of england had a parallel separate counterpart like the us treasury department it might not have experienced such a “negative reaction by markets” when it rolled out its temporary bond buying program at the same time it has been working to raise interest rates and otherwise tighten financial conditions to restrain inflation the benchmark 10year treasury yield tmubmusd10y was near 4 on friday up sharply higher from its 23 closing low of the year according to dow jones market data sharply higher interest rates have shocked financial markets this year as the fed has worked to tame inflation holding near a 40year high us stocks were lower friday with the dow jones industrial average djia off about 330 points or 11 and the sp 500 spx down 2 and the nasdaq composite index comp 26 lower