US Treasury Secretary Scott Bessent's intervention to reduce long-term borrowing costs has faced immediate challenges, as 10-year and 30-year Treasury yields quickly erased the brief relief rally following his announcement to double bond buybacks. On Thursday, the 10-year Treasury note yield rose back to 4.69%, nearly its level before Bessent's initial announcement on Wednesday to increase buybacks to $4 billion per operation from $2 billion, starting September 9 and running through November 4. Bessent later indicated the buybacks could exceed $4 billion, stating the Treasury has a "big toolkit" and believes current yields don't reflect fundamentals, especially given geopolitical events like the Iran conflict. He also pointed to weak liquidity in the 30-year bond market as a source of strain.
Despite Bessent's efforts, analysts expressed skepticism. Krishna Guha of Evercore ISI called the plan a "weak form of Operation Twist" that could backfire if interpreted as a sign of Washington struggling to fund itself cheaply. JPMorgan's Maia Crook warned that the intervention "belies the underlying structural challenges and does nothing to address them," potentially harming the Treasury's reputation for stable debt issuance. The Fed watchers also noted that if the buybacks succeed in holding down bond yields, it could encourage borrowing during elevated inflation, potentially pressuring the Federal Reserve to raise interest rates.
Contributing to the upward pressure on yields are several factors, including surging government and corporate debt supply, waning foreign demand, and significant borrowing by tech firms for artificial intelligence infrastructure. JPMorgan's James Sullivan highlighted that the US government's buyback strategy, which involves buying longer-duration bonds and issuing shorter-dated bills, might only offer temporary relief and leaves the underlying debt burden intact. Corporations, particularly leading AI companies, have issued $200 billion in debt this year, an 80% increase from a year prior, intensifying competition for capital. This increase in bond supply, combined with higher bond yields, makes fixed-income assets more competitive with equities, complicating asset allocation decisions for investors, as bond yields are now higher than the S&P 500's earnings yield.
