US Treasury Secretary Scott Bessent is making concerted efforts to bring down US government bond yields, which have reached their highest levels since 2008. The 30-year US Treasury yield recently touched 5%, prompting Bessent to announce a surprise increase in the Treasury's bond buyback program and signaling an upcoming fiscal initiative to tackle the high borrowing costs. These actions come amidst a period where long-term Treasury yields have continued to rise despite lower policy rates, with the 30-year yield now above 5%, suggesting investors are demanding a higher price for duration risk.
Bessent has explicitly stated that current yields "don't reflect the underlying fundamentals" and has expanded planned buybacks in the 10- to 30-year sectors, at least doubling the size from $2 billion to $4 billion per operation. He has also indicated that these operations could be even larger. This strategy is seen by some as an attempt to resist the market's clearing price for duration, even though the Treasury frames it as providing greater liquidity support to longer-dated securities. The Treasury could potentially draw on the nearly $1 trillion held in the Treasury General Account (TGA) to fund these expanded purchases, transforming a program measured in billions into one potentially backed by hundreds of billions of dollars of additional purchasing power.
However, the effectiveness of these measures faces skepticism from market analysts, particularly regarding the Treasury's limited firepower. While Bessent has built up the TGA to around $950 billion, compared to a stated goal under the Biden administration of $550 billion to $600 billion, this $1 trillion represents only a few percent of the outstanding Treasury market. Markets are likely to anticipate the limits of this buying capacity, and if the cash is replaced with shorter-term borrowing, it could simply pull refinancing requirements forward. The historical context suggests that attempts to force the bond market can be challenging, as the market is likely to price in the finite nature of the Treasury's resources.
Adding to the complexity, Federal Reserve Chairman Kevin Warsh recently made a hawkish speech at Jackson Hole, while simultaneously attempting to redefine the boundary between monetary policy and financial markets. Warsh's framework emphasizes the Fed's role in liquidity capital but places greater weight on the market's role in pricing risk capital, especially duration risk. This creates a dynamic where Bessent's efforts to influence yields are set against a backdrop of the Fed's evolving stance on market intervention and the underlying fiscal challenges. Bessent's intent is to get the market to "focus on the fundamentals" and avoid trading on headlines during quiet periods.
