Student or Learner
Please clarify the following in red.
With the private sector engulfed in so much uncertainty ... banks are reducing credit to businesses, while increasing their purchase of government debt. The banks take in low-cost funds from the Fed and then lend it back to the government at a higher rate. This produces a small profit ...
Does it mean "banks are buying government bonds (Tresury bonds) from the Fed"?
Yes. It could refer to other gov't bonds as well (state or municipal). Context would tell. This seems to just be talking about federal government.