The US Treasury, under Secretary Scott Bessent, announced it would purchase up to $6 billion in longer-dated government debt, tripling its initial planned amount of $2 billion. This operation, the first under an expanded buyback program, aimed to stem the recent increase in borrowing costs by reducing the supply of bonds in the market.
However, this move backfired significantly. Following the announcement, most Treasury yields sharply jumped instead of falling. The 10-year bond yield surged to over 4.85%, its highest level since November 2023, while 20- and 30-year bond yields reached as high as 5.3%. This unexpected market reaction also caused the Nasdaq Composite to drop by 0.8% and the S&P 500 to tumble by 0.6% by midday.
Analysts and investors viewed Bessent's action as an attempt to defend a specific price level in the bond market, a strategy that legendary investor Stanley Druckenmiller had previously criticized. Druckenmiller warned that once markets believe the Treasury is defending a price, every rise in yields becomes a test of official resolve, forcing operations to grow to survive these tests. The market's negative reaction underscores the limits of the Treasury's power and its struggles to gain leverage over economic factors like bond yields and gas prices amid record national debt, which recently surpassed $40 trillion.
