Why U.S. Treasury’s Bond Market Intervention Is Just The Beginning | Luke Gromen

Gromen argues that the AI investment boom is competing with Treasury borrowing for capital, pushing borrowing costs higher, while a future AI bust could further weaken employment receipts and worsen the U.S. fiscal position. He says that downturn could expand Treasury buybacks from $4 billion to $40 billion or even $400 billion, potentially with Federal Reserve support.

Gromen says the U.S. is nearing a debt spiral: entitlements, interest, and veterans benefits already equal about 105% of receipts, and those obligations are growing 7.5% year to date versus 4% receipt growth. In his view, easing would be inflationary because the government owes beneficiaries inflation-adjusted goods and services.

Gromen describes Treasury buybacks, stablecoins, swap lines, and shorter-maturity issuance as a soft form of yield-curve control intended to contain long-term yields, but he says that process would be inflationary. He also interprets Kevin Warsh's suggestion that inflation could end at 2.1% or 2.9%, rather than exactly 2%, as a dovish signal.

Gromen argues that reducing the U.S. debt burden would require negative real rates and substantial real losses for bondholders, citing 1946–1951 as a historical precedent. He links that framework to the Treasury market's current vulnerability, since either a very strong or very weak dollar can pressure Treasury prices through foreign selling, funding stress, or higher inflation expectations.

Treasury demand could weaken further as insurance companies shift from long-duration Treasuries into floating-rate private-credit loans, replacing duration exposure with credit risk. Gromen also expects elevated Treasury volatility because hedge funds hold about 8.5% of the market, much of it through a highly leveraged basis trade.

Gromen says managed Treasury yields and declining real returns are making gold more important than Treasuries as an FX reserve, and he expects that role to grow. He points to China's purchases rising from 10 tons to 26 tons during successive periods of weaker prices, alongside central-bank buying returning close to all-time highs in the second quarter.