The Big Reveal

Buybacks

It took a while, but the market is finally turning its collective eyes to the Treasury’s 11 a.m. announcement today. The maximum purchase amount for the auction is currently “at least $4B” as specified in August, and we get the big reveal today. The market is going into the announcement short dollars, because that’s the asymmetric bet, but that probably means a decent USD rally if the number comes in at $4B and disappoints.

Bessent is increasingly involved in markets these days and has declared that he is now the house—visions of some sort of Martin Scorsese pit boss main character who wears sunglasses at night, strutting through the smoke-filled global markets casino—so I suppose one should expect a large number today as he aims to enforce his estimate of the correct market price for U.S. bonds.

Zooming out a bit, we are not talking about huge numbers, but it is an important signal. Bessent is staking his credibility on his inside information and there is room for some explosive moves whether he wins or loses the war on high yields and weak yen.

The buyback number will probably land as a red headline on Bloomberg, but if not, it will take a minute or two for people to figure out what has happened as everyone combs frantically through the U.S. Treasury website.

$4B:     Disappointing, buy USD, sell gold, sell bonds.
$6B:     The most boring result.
$10B:   Big number, sell USD, buy gold, buy bonds.

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BOJ

Bank of Japan Policy Board member Kazuyuki Masu speaks tonight at 9:30 p.m. NY time and his remarks will be interesting as the market has moved beyond September (rate hike locked in) and is now keen to determine if the BOJ might hike back to back.

Masu’s evolution has been from mildly dovish in 2025 (no rush to hike given tariff uncertainty) towards something more hawkish as 2026 has progressed. He voted with the majority in April (hold) and June (hike).

The BOJ story is becoming particularly interesting because:

1. September hike is fully priced and has essentially been pre-announced by Kyodo and Scott Bessent.
2. The Bank of Japan is getting closer to neutral and that makes the calculus dramatically different for the next few hikes after September. The nominal neutral rate, according to various estimates from Masu, Tamura, and BOJ and IMF models, is somewhere in the 1% to 2% zone. The terminal implied rate looks to be something like 1.8% right now, so further hawkishness relative to pricing pushes the top of the envelope while current policy rates push through its bottom. Here is the Japan 2-year yield.

3. I find it hard to believe that U.S. policymakers have as much influence as they claim over Bank of Japan actions. Sure, there could be a quid pro quo for this meeting as the U.S. joins the MOF intervention, but I would think that Japan decides what happens after. With a 25% chance of a hike priced for October, there is some room for a dovish hike outcome at this month’s BOJ meeting.

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Final thoughts

1. The Economist: Are teenagers growing dimmer?
2. Funny point by Joe Weisenthal: “One of the greatest McLuhanist reversals of all time. Everyone got a phone in their pocket and then the phone call came to an end.” Smartphones killed the phone call.

Have a ding dong day.

The word bellwether is a combination of “bell” and the old English word “wether” which means “male sheep”.

“Bellwether” comes from the old practice of putting a bell around the neck of a wether, a male sheep that led the flock. The bell allowed the shepherd to hear where the flock was moving.

Over time, bellwether became a word for a person, place, market, or indicator whose movement signals where others are likely to follow.

HT GITT

good luck ⇅ be nimble