Treasury Secretary Scott Bessent has become a highly interventionist figure in financial markets, making unexpected moves to address rising U.S. borrowing costs. His recent actions include announcing that the Treasury Department would at least double its planned purchases of outstanding 10-year to 30-year debt, just two weeks after releasing its initial buyback schedule. This decision effectively doubles the maximum size of these repurchases from $2 billion to at least $4 billion per operation. Bessent's approach aims to quell a potentially damaging rise in long-term yields, which had reached multi-year highs due to factors like increased oil prices, growing government debts, and inflation concerns.
Bessent's strategy is influenced by his past experience as a hedge fund manager, where he made significant bets on government responses to currency and borrowing cost pressures. For instance, he previously helped George Soros's fund earn over $1 billion by betting against the Japanese yen in 2013. More recently, as Treasury Secretary, he intervened to support the Japanese yen, calling for the U.S. to buy $5 billion to $10 billion worth of the currency. This was done to prevent Japan, a major holder of U.S. government debt, from selling Treasuries, which would further increase American borrowing costs. Former Treasury Secretary Henry Paulson supported this move, emphasizing the importance of preventing Japan from selling Treasuries.
While Bessent's interventions, such as the bond buybacks, initially caused long-term yields to drop, the market quickly pushed back. For example, the 30-year Treasury yield fell to around 5.19% on Wednesday after the buyback announcement but climbed back to 5.27% by Thursday. Analysts note that these interventions, while temporarily effective, do not address the underlying issues driving higher yields, such as the federal debt exceeding $40 trillion, persistent deficits, and heavy borrowing due to the AI investment boom. Critics like Eoin Walsh of TwentyFour Asset Management described such interventions as a "sticking plaster" that cannot succeed in isolation. Investors also express concern about the Treasury's unpredictable debt management strategy, fearing it could lead to higher borrowing costs and increased term premium on U.S. government debt.
Wall Street analysts believe Bessent's actions signal his determination to prevent bond yields from spiking, as surging long-term rates impact everyone from homebuyers to corporations. However, prediction markets indicate continued pressure on Treasury yields, with Polymarket assigning a 66% probability that the 10-year Treasury yield reaches 4.8% before 2027. Similarly, Kalshi traders see a 64% chance that the average 30-year mortgage rate, currently at 6.67%, will climb above 6.9% this year. These higher yields have broader economic implications, increasing mortgage rates, the government's interest bill, and pressuring rate-sensitive technology stocks.
