US Treasury Secretary Scott Bessent has emerged as a highly interventionist figure, making unexpected moves in financial markets to curb rising US borrowing costs. His latest surprise came just two weeks after releasing a buyback schedule, when his department announced it would at least double planned purchases of outstanding 10-year to 30-year debt. This unpredictability has alarmed market participants, including investors and analysts at JPMorgan Chase, Jefferies LLC, and PGIM Inc., who warn that such surprises could increase term premium – the extra compensation investors demand for potential risks in US government debt, ultimately leading to higher borrowing costs.
Bessent's intervention to suppress long-term borrowing costs complicates the Federal Reserve's efforts to manage interest rates. If his strategy successfully lowers bond yields, it could encourage borrowing amidst elevated inflation, potentially pressuring the Fed to hike rates, according to Fed watchers. Despite these efforts, interest rates rebounded on Thursday. The yield on the 10-year Treasury note rose to 4.69%, nearly its level before Bessent's announcement to increase bond buybacks to $4 billion per operation from $2 billion. The 30-year bond yield also climbed to 5.23%, slightly below its 19-year high from earlier in the week.
While Bessent stated on CNBC that the bond repurchase program could exceed $4 billion, he believes current yields do not reflect underlying fundamentals. However, Wall Street investors remain concerned about burgeoning government debt, heavy borrowing by tech firms, and the Federal Reserve's commitment to fighting inflation. The national debt surpassed $40 trillion on Wednesday, with the Congressional Budget Office estimating an annual deficit exceeding $2 trillion this year. Analysts like Gennadiy Goldberg of TD Securities suggest the market is skeptical of the Treasury's ability to backstop these moves, as fundamental deficit reduction largely rests with Congress. Mark Cabana of Bank of America Securities pointed to elevated uncertainty regarding the Fed's inflation containment strategy as a key driver of higher borrowing costs.
