As long-term bond yields continue their upward climb, the U.S. Treasury has announced plans to expand its buyback program for long-dated government debt in an effort to stem the rise. Yields initially pulled back in response, the dollar softened in tandem, and gold advanced by 3% (Chart 1). As Mohamed El-Erian noted following the announcement, while this maneuver does not constitute formal yield curve control (YCC), it could represent an initial step in that direction. Here is our assessment of the situation.

Chart 1: Yield, dollar, and gold reactions to the U.S. Treasury buyback announcement

Source: Bloomberg, World Gold Council

*Data reflects intraday moves on August 19, 2026, following the U.S. Treasury buyback announcement.

Who Will Purchase U.S. Treasuries?

Although U.S. Treasury yields ultimately mirror market expectations for economic growth, inflation, and monetary policy, investors are increasingly focused on a crucial question: can the balance be maintained between persistently growing government debt supply and the willingness of different buyer groups to absorb it?

From the supply perspective, issuance volumes continue to climb: ongoing fiscal deficits necessitate ever-expanding borrowing, while the swelling stock of existing debt requires continuous refinancing. On the demand side, some traditional buyers appear to be turning more cautious. Foreign official institutions are advancing reserve diversification strategies and reducing dollar exposure, while overseas private investors face more attractive yield opportunities in other markets. Banks remain constrained by balance sheet limitations, and corporate borrowing tied to artificial intelligence and data center investments is also diverting investor capital (Chart 2). Furthermore, the composition of U.S. Treasury demand is shifting toward highly price-sensitive private sector participants, including hedge funds.

Chart 2: U.S. Treasury issuance is climbing substantially, while AI-related bond issuance also competes for market funding

Source: Bloomberg, Dallas Federal Reserve, SIFMA, World Gold Council

*AI-related bond issuance data comes from the Dallas Federal Reserve report titled "How AI debt financing impacts duration supply and interest rates." Treasury issuance data is from SIFMA.

Against this backdrop, coupled with currently elevated inflation and growing concerns over public debt trajectories and policymaker independence, investors are demanding higher risk premiums to hold long-dated U.S. Treasuries. The recent rise in yields signals that investors no longer assume Treasury supply will be absorbed effortlessly by the market, and the supply-demand balance has become an increasingly important determinant in pricing.

Limited Policy Options for Decision Makers

The Treasury's stepped-up buyback efforts indicate an intent for modest intervention, but without resorting to more direct support measures such as quantitative easing. Some relatively moderate alternatives exist, including adjusting the enhanced Supplementary Leverage Ratio (eSLR) standards, curbing Treasury sell-offs (similar to the approach during the early August yen intervention), and promoting stablecoin development. However, these measures are likely to treat symptoms rather than underlying causes.

Fresh rounds of quantitative easing from the Federal Reserve appear unlikely, given the significant credibility costs involved. If raising interest rates can in principle achieve similar effects by tempering inflation expectations and suppressing term premiums, why deploy unconventional balance sheet tools to manage long-end yields, especially when the Fed Chair has publicly opposed such approaches? Yet, with midterm elections approaching, rate hikes may not be welcomed by all parties.

Another alternative could be yield curve control, where the Fed directly intervenes to cap yield levels rather than the Treasury. Yield curve control may be quietly entering policy discussions.

Why Yield Curve Control Could Enter Policy Discussions

Yield curve control is not merely an academic concept. In 2020, the Federal Reserve floated this option in response to the COVID-19 pandemic. The United States employed yield curve control back in the 1940s, achieving early success with the policy. Both Japan and Australia have implemented yield curve control over the past decade. For those two nations, the policy aimed to prevent yields from falling below target levels while shaping the yield curve's configuration. For the current U.S. situation, yield curve control would share the same objective as the 1940s approach: curbing upward yield pressure.

Unlike quantitative easing, yield curve control does not necessarily require significant Fed balance sheet expansion. Quantitative easing is more about asset purchase volumes, leading to marked balance sheet growth, and was one of the key factors supporting gold's investment case following the global financial crisis. Theoretically, yield curve control could be implemented periodically with a much smaller balance sheet impact. It could even be framed as a measure to improve market functioning rather than macroeconomic stimulus. Even if its form and effects resemble quantitative easing, it would not be labeled as such. This represents plausible deniability at the monetary policy level.

What This Could Mean for Gold

Like all factors, yield curve control's impact on gold is not one-directional. U.S. monetary policy is just one of many drivers of global gold prices, and even for Western investors, yield curve control would not automatically translate into a positive outcome for gold. Nevertheless, we believe the positive effects are likely to outweigh the negative ones and could generate substantial market attention for gold:

鈥?Dollar pressure. A weaker dollar is likely the most direct transmission channel for yield curve control benefiting gold. This was already visible during the August 19 buyback announcement. We believe the currently overvalued dollar faces pressure on multiple fronts, and yield curve control, similar to buyback programs, would increasingly force market adjustments through exchange rates rather than bond markets.

鈥?Financial repression, another term for yield suppression, would trigger a tug-of-war between policymakers and markets. Treasury markets clearing at administratively influenced prices creates uncertainty, as investors cannot know where yields would settle absent policy intervention. As seen in other market interventions, particularly Japan's experience, markets do not concede easily. This scenario does not require aggressive short sellers, or even genuine sellers; merely absent buyers would suffice. Moreover, what might attract investors to gold is not just lower yields themselves, but the policy intervention reflected in artificially suppressed yields.

鈥?Lower real rates. Yield curve control could make it harder for nominal yields to keep pace with rising inflation expectations. If policymakers successfully suppress yields amid elevated inflation, real returns on government bonds would decline. Gold's negative correlation with real interest rates could thus be further strengthened.

However, if investors believe the policy carries credibility and is only temporary, yield curve control could also work effectively. It could alleviate concerns about market dysfunction and potentially compress term premiums while improving sentiment. Ironically, even with lower bond yields, gold could weaken under such circumstances. But the U.S. experience of the 1940s has shown that such policy arrangements are difficult to sustain over the long term. During that period, yield curve control ultimately unraveled amid rising inflation and concerns over Fed independence. Does that sound familiar?

Unfortunately, we cannot conduct counterfactual analysis of gold's performance during that era, as gold was not freely tradable then unlike other hard metals such as silver and copper. Gold mining companies are also imperfect proxies: while they capture some of gold's monetary demand, rising costs have squeezed corporate margins. Yet experience from recent years suggests that concerns over high debt levels remain an important driver of gold demand, both in the U.S. and elsewhere, and any response that does not involve reducing debt or shrinking deficits is likely to continue supporting gold.