Scott Bessent Is Moving Markets Everywhere, With a Lot at Stake

US Treasury Secretary Scott Bessent has emerged as a highly interventionist figure, implementing a series of unexpected maneuvers that have significantly influenced financial markets. Most recently, the Treasury Department announced it would at least double its planned purchases of outstanding 10-year to 30-year debt, raising the maximum from $2 billion to at least $4 billion. This action aims to curb a rise in US borrowing costs, particularly the 10-year Treasury yield, which had topped out at 4.74% after the Iran war outbreak, pushing 30-year mortgage rates to around 6.75%. Following the announcement, the 10-year yield fell to 4.63%, finishing the day at 4.65%.

Bessent's strategy, while intended to improve market liquidity for less-traded instruments, has been interpreted by many as a clear signal of his commitment to lower long-term yields. This intervention followed an earlier coordinated effort with Japan to stem the yen's decline, indicating a pattern of leaning against unwanted market moves. The market reaction has been substantial: long-end yields fell by as much as 10 basis points, the curve flattened, and the dollar rolled over. Gold surged past $4,500 per ounce, and Bitcoin jumped, surpassing $70,000 for the first time in over two months, reaching over $72,000.

However, Bessent's actions have sparked criticism and created tension with other policymakers. Critics warn that the strategy could accelerate inflation and shift more borrowing into short-term bills, making the cost of financing the $32.2 trillion in public debt more sensitive to interest rate increases. This aggressive stance also puts pressure on Federal Reserve Chairman Kevin Warsh, who is trying to establish a cleaner separation between monetary policy and market volatility. Many analysts believe the dollar will be the "biggest casualty," as lowering US yields reduces the attractiveness of dollar-denominated debt and suggests a tolerance for a weaker dollar to support the economy. A Bloomberg gauge of the greenback fell to a three-month low after the announcement.