Treasury Secretary Scott Bessent's recent efforts to curb US borrowing costs, particularly by expanding bond buybacks, have ignited significant debate among financial experts. While Bessent's announcement to "at least double" buybacks of longer-dated bonds did initially lead to a brief dip in long-term yields, the market's more lasting reaction has been a weakening dollar, coupled with rallies in gold and Bitcoin. This suggests a "debasement trade" narrative is gaining traction, driven by concerns over swelling US deficits and the direction of economic policy. Many analysts, including Libby Cantrill from Pimco, argue that Bessent's measures do not address the fundamental issue of higher structural US budget deficits, which necessitate a significant supply of Treasuries to finance the national debt.
Bessent's strategy has created a "Bessent put" in the market, implying a backstop for the long end of the yield curve, as noted by Jason Williams of Citi. This is evident in the outperformance of Treasuries relative to equivalent-maturity swaps and a bullish tilt in options for long-maturity Treasuries. For instance, the spread between 30-year Treasuries and swaps narrowed to its smallest point since February. However, despite these interventions, the 10-year US yield remains near 4.7%, close to its highest level since early 2025, and the 30-year Treasury yield is near 5.2%, nearing its loftiest since 2007. The market's initial positive reaction to Bessent's buyback announcement, including a drop in the 30-year yield from 5.26% to 5.18%, was largely reversed within two days.
A core point of contention is the divergence between Bessent's interventionist approach to manage borrowing costs and Federal Reserve Chairman Kevin Warsh's preference for markets to lead. Critics, such as billionaire investor Stanley Druckenmiller, view Bessent's plan as "price management" rather than liquidity management, warning it could undermine the Treasury's credibility. The effectiveness of Bessent's current buyback operations is also questioned, as the Treasury is swapping one debt for another (repurchasing 30-year bonds by selling short-term bills or using cash from its $950 billion Treasury General Account). The scale of these operations, with $4 billion per buyback against a national debt of $40 trillion, is seen by some as too small to have a lasting impact. The market's reaction, with the dollar falling by as much as 0.8% and gold surging over 3% after Bessent's announcement, suggests that artificially suppressing bond yields may lead to adjustments elsewhere in the financial system. Meanwhile, carry trades funded by the US dollar are experiencing their longest winning run since 2008, highlighting another ongoing market trend.
