Treasury Secretary Scott Bessent's plan to reduce US borrowing costs by expanding bond buybacks, dubbed the "Bessent Put," has faced significant investor skepticism. While Bessent announced an intention to at least double buybacks of longer-dated bonds, key market metrics and positioning show a mixed impact. Initially, Treasuries outperformed equivalent-maturity swaps, narrowing the 30-year spread, and benchmark US yields drifted lower. However, this initial rally was short-lived, with the 30-year yield quickly returning to and even exceeding its pre-intervention levels.
The market's reaction suggests that while some traders are reluctant to bet against a Treasury with a "big buyer" in the market, the underlying structural issues, such as higher US budget deficits requiring significant bond supply, are not being addressed. The 10-year US yield, which Bessent's administration reportedly targets, is still near 4.7%, close to its highest level since early 2025, and 30-year Treasuries are near 5.2%, approaching their loftiest since 2007. Analysts like Libby Cantrill from Pimco argue that while buybacks might technically lower yields, the fundamental reasons for higher Treasury yields remain unchanged.
Critiques from Wall Street, including Bessent's former mentor Stanley Druckenmiller, highlight the market's swift rejection of the intervention's lasting impact. Druckenmiller noted that yields, after an initial dip, "round-tripped to levels above where they started" within a day, indicating the market's verdict that the move was not a sustainable liquidity solution. Some experts, like Krishna Guha of Evercore ISI, characterized the plan as a "weak form of Operation Twist" with potentially little enduring impact, and even suggested it could backfire by signaling concerns about the ability to fund long-term debt at acceptable costs.
Despite the mixed results, some market shifts were observed. The narrowing swap spreads reflect the possibility of further buyback increases. There was also a bullish tilt in the options market, with a sharp increase in calls relative to puts on US bond futures, particularly for long-maturity Treasuries, suggesting some tactical plays on potential short squeezes. However, overall long-term borrowing costs remain elevated, and the effectiveness of Bessent's tactical interventions in fundamentally altering the yield curve is under significant doubt, leading to ongoing credibility challenges for the Treasury Department.
