On August 20, Thursday, Eastern Time, U.S. Treasury Secretary Mnuchin released a series of policy signals, covering recent market hotspots from the U.S. bond market to the Iranian issue. Just a day earlier, the Treasury had announced a doubling of long-term Treasury bond repurchase scale, but the market rally lasted less than 24 hours. In the face of rising yields, Mnuchin clearly stated that the Treasury's intervention tools are far from exhausted and announced a new fiscal restructuring initiative aimed at addressing high borrowing costs for long-term loans.

Mnuchin stated that the Treasury's single long bond repurchase scale could exceed $4 billion, emphasizing "We have a large toolbox, so stay tuned." He also revealed that President Trump has tasked him and the Director of the Office of Management and Budget to lead a new fiscal restructuring plan, expected to be announced this weekend or early next week.

Mnuchin also noted that the current U.S. Treasury yields do not adequately reflect the fundamentals of the U.S. economy, particularly pointing out that the liquidity of the 30-year Treasury bonds is "very scarce"; regarding the dollar, he reiterated the continuation of a strong dollar policy. In terms of corporate financing, he believes that expectations of AI investment are causing companies to be "almost insensitive" to yields when issuing corporate bonds, and corporate investment is expected to ultimately drive productivity growth.

On the Iranian issue, according to CCTV, Mnuchin revealed that a press conference will be held on August 24, next Monday, to specifically elaborate on U.S. action plans regarding Iran. Mnuchin hinted that increasing economic pressure could become an important means to avoid the resumption of large-scale military action. CCTV mentioned that he said, "We hold asymmetric information, and I am not sure why the oil issue would become a focus; if we apply the maximum economic pressure, this means large-scale military conflict is unlikely."

According to Xinhua News Agency, Mnuchin stated that the Trump administration will intensify economic pressure on Iran and threaten to impose "unprecedented economic isolation" measures on Iran. Mnuchin also called on all U.S. allies, "We want to overturn this regime," and warned that they must either stand with the U.S. or be against it.

Mnuchin also stated, he reiterated the strong dollar policy, claiming that the dollar is returning to the levels of two months ago, and he does not understand the rise in oil prices on Thursday.

Buyback benefits only last a day? Mnuchin claims "24 hours is just noise"

The U.S. Treasury announced on Wednesday, August 19, that it would at least double the liquidity support repurchase operations for 10-to-20 year and 20-to-30 year U.S. Treasury bonds, with a single operation cap raised from $2 billion to at least $4 billion. The Treasury positioned this move as a measure to improve the liquidity of the long-term Treasury bond market.

Following this announcement, U.S. Treasury yields fell significantly, briefly boosting the global bond market. However, this positive news did not last long. On Thursday, long-term Treasury yields rose again, with the 30-year Treasury yield increasing by about 7 basis points to 5.26%, returning to levels prior to the Treasury's announcement to expand the repurchase scale; the 10-year Treasury yield also touched 4.71%.

Reuters reported that the relief brought by the Treasury's buyback measures might only be temporary, as the market continues to focus on the large U.S. fiscal deficit, inflation expectations, and the pressure of long-term bond supply. TD Securities strategist Howard Du previously indicated that the market is not entirely convinced that Mnuchin can effectively suppress long-end yields. Franklin Templeton's fixed income head Andrew Canobi pointed out that multiple forces are currently driving yields upward and steepening the yield curve, including fiscal pressures in major developed economies and persistent inflation.

Regarding this market volatility, Mnuchin responded calmly in a CNBC interview: “Anything that happens within 24 hours is just noise.” The Treasury's goal is to restore balance to the weak market and refocus investors on the fundamentals, rather than chasing news headlines in a thin market.

No upper limit on the repurchase "toolbox", single operation could far exceed $4 billion

When asked if the Treasury would intervene further in the U.S. bond market, Mnuchin sent a very clear signal.

He stated that the current Treasury bond market belongs to a lightly traded market segment, and the Treasury has a sufficient toolbox in the Treasury bond market, with a strong toolkit. “We have a large toolbox, so stay tuned. Part of the job is to send signals—indicating that we believe the yields do not reflect the underlying fundamentals.”

Mnuchin emphasized particularly that the market may not have fully considered the basic factors of the U.S. economy. He believes that the current U.S. Treasury yields do not reflect the fundamentals, with liquidity for 30-year Treasury bonds being particularly scarce.

Regarding how much the repurchase scale could expand, Mnuchin did not set a clear upper limit, only stating that it would depend on conditions.

This means that after the Treasury has announced an expansion of the repurchase scale, Mnuchin has not sent a signal of "this is it," but rather clearly retained the possibility of further action. Market reports indicate that Mnuchin even stated that single repurchase scales could exceed the previously announced $4 billion.

Mnuchin also stated that the U.S. can relieve its debt burden through its own development. In other words, while the Treasury alleviates long-term financing pressure through market operations, he remains focused on economic growth and productivity enhancement as the ultimate solution to solving U.S. debt issues.

Fiscal restructuring plan to be released soon, Mnuchin: Announcement this weekend or early next week

Aside from market operations, Mnuchin also revealed a more structurally significant policy trend: the Trump administration is about to launch a new round of fiscal restructuring plans.

“We may announce measures to strengthen fiscal restructuring this weekend or early next week,” Mnuchin stated in a CNBC interview. He also disclosed to reporters that President Trump personally tasked him and OMB Director Russ Vought to jointly lead this plan.

Mnuchin did not specify what this new fiscal plan would entail. However, he hinted that it might include saving "hundreds of billions" through a fraud task force and cutting "wasted" federal project funds allocated to states.

It is noteworthy that just on Wednesday, data from the U.S. Treasury showed that the total public debt of the U.S. has officially exceeded $40 trillion for the first time.

There are significant market differences concerning the actual effects of this fiscal restructuring plan. Evercore ISI chief strategist Sarah Bianchi wrote in a report on Thursday: "We are skeptical about the government taking substantial action on the deficit issue. The impact of this week’s sudden buyback announcement was fleeting, and we believe any announcements related to the deficit will have similarly limited effects."

However, Mnuchin remains optimistic about the fiscal outlook. He stated that the U.S. fiscal deficit "is very likely" to have peaked. He attributes this to the rebound in tariff revenue—after the Supreme Court overturned most of Trump’s tariffs last year, the government is in the process of rebuilding the import tax revenue system, and related tariff income is recovering.

“Putting it all together, the next few weeks and months will be very exciting as we push forward with this plan,” Mnuchin said regarding the new fiscal plan.

Short debt financing buying long debt, can fiscal version of QT be effective?

Another concern for the market regarding the Treasury's repurchase operations is the source of these funds.

The Treasury's statement on Wednesday did not specify the specific funding source for this expanded repurchase operation. When responding to fluctuations in financing needs, the Treasury typically relies on issuing short-term Treasury bills with maturities of less than one year.

If the Treasury indeed funds the repurchase of long-term U.S. Treasury bonds by increasing the issuance of short-term Treasury bills, this operation could create effects similar to a fiscal version of "Quantitative Tightening" (QT)—by increasing short-term debt while reducing long-term debt supply, and altering the maturity structure of the Treasury bond market.

The Financial Times previously cited market analysts who discussed this possibility; Bloomberg also cited a report from Deutsche Bank strategists describing this change as "QT is coming."

However, this does not mean that the Treasury is implementing traditional quantitative easing.

Unlike the Federal Reserve, which can directly create bank reserves, the Treasury cannot conjure Treasury bonds and use them directly as payment for purchasing long-term Treasury bonds. If funding for repurchases is provided through the issuance of short-term debt, investors must ultimately purchase these short-term Treasury bills.

Therefore, some market participants believe that this operation may have a relatively limited actual incremental demand for long-term assets. Bloomberg commentary even pointed out that even if the repurchase scale expands further, relative to the U.S.’s massive long-term debt stock and issuance scale, the new demand remains very limited, making it difficult to independently change the supply-demand pattern of long-end U.S. Treasury bonds.

This is also one of the key reasons why long-term yields were quickly pushed higher on Thursday: while the Treasury can influence the liquidity structure of the market, it is challenging for repurchases alone to eliminate the fiscal deficit, debt supply, and inflation risks.

AI investment makes companies less sensitive to financing costs, Mnuchin optimistic about productivity growth

In addition to government debt, Mnuchin also discussed the rapidly expanding corporate bond issuance in recent years and the impact of AI investment on the bond market.

He stated that due to companies believing they can achieve high returns from AI investments in the future, he has observed that corporate bond issuance is “almost insensitive” to yields.

Mnuchin remarked that it is interesting for companies to issue long bonds; if he were a corporate executive, he would pay more attention to the middle of the yield curve, known as the "belly."

In his view, corporate investment will ultimately promote productivity growth, so the current financing behaviors of many companies will not significantly change due to short-term yield fluctuations.

This judgment also corresponds to another pressure faced by the current bond market: the construction of AI infrastructure requires substantial capital expenditures, and tech companies as well as related industry chain companies are continuously financing through the bond market, thereby increasing supply in the credit bond market.

However, Mnuchin is more focused on the long-term economic returns that AI investment may bring. In his logic, if AI investment can genuinely translate into improved productivity and economic growth, then the relatively high financing costs currently borne by companies might eventually be offset by higher investment returns.

Mnuchin reiterates strong dollar policy, states that the dollar is returning to levels of two months ago

Regarding the dollar, the signals from Mnuchin are relatively clear.

He stated that the dollar has remained very stable. The dollar is returning to its levels two months ago. When asked about the dollar weakening after the Treasury's announcement to expand repurchases on Wednesday, Mnuchin reiterated: "We will continue to maintain a strong dollar policy."

This statement came after the Treasury expanded long-term bond repurchase scales. Prior to this, the market was concerned that the Treasury’s direct intervention in the long-term Treasury bond market might reinforce investors' worries about U.S. policy intervention and the risks of dollar assets. Bloomberg reported that some investors even believed that the dollar might become a potential "victim" of this bond market intervention.

However, Mnuchin clearly wants to convey the opposite message to the market: the Treasury's market operations do not mean that the U.S. is abandoning its strong dollar policy.

Trump administration shifts to economic pressure, press conference on Iranian issues next Monday

When discussing the Iranian issue, Mnuchin sent out another significant policy signal.

According to Xinhua News Agency, on Wednesday, Mnuchin threatened to impose economic isolation on Iran; in an interview with NBC, he stated, "This will be the largest, most coordinated economic isolation in history."

He announced that a press conference would be held next Monday to discuss U.S. actions regarding Iran and stated that the U.S. would implement "the most severe" sanctions against Iran.

The U.S. government is currently trying to compel Iran to make concessions by further strengthening economic, financial, and trade pressures. The day before Mnuchin's remarks, Xinhua mentioned that President Trump posted on social media that Iran missed a great opportunity to reach an agreement with the U.S. He announced that the U.S. would implement "the most devastating economic action against a nation ever seen."

Mnuchin's latest statement is particularly noteworthy as Xinhua reported that Mnuchin indicated that the Trump administration's plan to severely damage Iran's economy might allow the U.S. to avoid launching large-scale military actions against Iran. He said:

“If we apply maximum economic pressure, it means large-scale military conflict is unlikely.”

This suggests that the current pressure tools the Trump administration is using against Iran may be further shifting from military means to economic and financial sanctions.

Xinhua cited U.S. media analysis pointing out that launching an "economic war" against Iran is not without difficulty. Iran has long been subjected to U.S. sanctions and has developed a certain level of adaptability to the relevant pressures; additionally, the Iranian issue is closely related to global energy supply and the security of shipping in the Strait of Hormuz, so the U.S. ramping up economic sanctions may also produce complex spillover effects.

Mnuchin announced that details of the actions would be further clarified next Monday, which also signifies that the market may soon receive more information regarding the scope, targets, and execution of sanctions.

The sudden rise in oil prices leaves Mnuchin "confused," states that U.S. actions will drive oil prices down

Notably, as the U.S. prepares to exert further economic pressure on Iran, Mnuchin himself was surprised by the rise in oil prices on Thursday.

“We saw oil prices soar today, and I genuinely do not understand.” Mnuchin stated.

He further mentioned that the upcoming U.S. economic actions will lead to "a quicker decline" in oil prices.

Oil prices have become an important variable that current U.S. policymakers must confront. The increase in crude oil prices not only raises energy costs for American consumers and businesses but also may further elevate inflation expectations, thereby increasing long-term U.S. Treasury yields.

This is directly related to Mnuchin's current efforts to stabilize the long-term Treasury market: if the Iranian situation causes energy supply risks to escalate, the rise in oil prices and inflation expectations could negate some of the impact that Treasury's repurchase operations have on long-end yields.

Therefore, Mnuchin is trying to emphasize that the Treasury has sufficient "toolbox" for the Treasury bond market while also trying to lower Iran-related energy risks through economic means, reflecting a shared policy logic behind the scenes—attempting to minimize external shocks to the U.S. long-term financing costs.

As of now, the market has provided initial feedback with the 30-year Treasury yield rising back to 5.26% on Thursday: the Treasury's market operations can quickly change short-term trading sentiment, but to truly reverse the trend of long-term yields ultimately depends on broader fundamental factors such as fiscal deficits, inflation, economic growth, energy prices, and U.S. debt supply and demand.