The effort by US Treasury Secretary Scott Bessent to stabilize the $32 trillion government bond market has backfired, with investors cautioning that his initial move was too timid to curb the yield surge and has instead undermined his own credibility. The 10-year Treasury yield, which serves as the pricing benchmark for trillions of dollars in global assets, has climbed this week to its highest level in nearly three years, coming within striking distance of the 5% threshold that Wall Street views as a danger zone.
Despite the Treasury's launch of a $60 billion bond repurchase program, which Bessent hoped would beat back what he called a "fever" in the world's most important market, borrowing costs have continued their upward march. The intervention has instead raised concerns that the United States, the cornerstone of global finance, is resorting to tactics typically employed by emerging economies with weaker debt-servicing capabilities. Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management and a member of the Treasury's borrowing advisory committee, stated: "We cannot ignore the fact that some of the measures the US has taken carry an emerging-market style risk. The US has historically rarely deployed such intervention policies, and when it does, it goes through formal, institutionalized processes."
The buyback operation, announced in August, stunned investors, coming on the heels of US intervention to prop up the Japanese yen. This week's climb in borrowing costs was ignited by a sharp surge in oil prices. On Thursday, escalating conflict between the US and Iran in the Strait of Hormuz, with attacks by Iran-backed Houthi rebels posing a growing threat to energy supplies in the region, drove oil prices sharply higher. During Friday's Asian trading session, the 10-year Treasury yield spiked to 4.98% before retreating to 4.94% in London trading. Brent crude had earlier approached $110 per barrel before falling below $105.
President Donald Trump signaled this week that the war with Iran and high energy costs could persist well beyond the November midterm elections. The combination of an Iran war driving up energy prices, alongside market concerns over record US sovereign issuance and a flood of corporate bond supply from tech companies, has collectively pushed global yields higher. US debt surpassed $40 trillion last month, deepening worries about the nation's fiscal position. On Thursday, Trump further fueled these concerns by promising $5,000 payments to all American adults if Republicans win the midterms, a plan totaling over $1 trillion. Market expectations that artificial intelligence will drive robust economic growth have also contributed to the yield surge.
Yet fund managers note that the 0.16 percentage point rise in the 10-year yield this week serves as proof that Bessent's buyback operation is too weak to suppress borrowing costs. The Treasury said Wednesday that the initial repurchase would cap out at $6 billion, up from the "at least $4 billion" pledged when the program was announced in mid-August. But some banks and investors had anticipated a larger operation. The Treasury confirmed Thursday it accepted only $5.2 billion of bonds offered by sellers. Vincent Mortier, chief investment officer at Amundi, believes the intervention is too small to address the larger problem of rising Treasury yields. He added that the signal Bessent sent through the buyback could be counterproductive, as it exposes "a certain degree of panic" within the US government.
When asked about investor skepticism regarding the buyback plan, a senior Treasury official shifted focus to Thursday's 30-year bond auction, which was also completed that day, describing demand as "exceptionally strong." The official noted that primary dealers, the large banks that absorb unsold bonds, took their lowest share of the long-dated auction in the category's history, while the bid-to-cover ratio, a measure of demand, ranked as the third highest in five years. Bessent, a former hedge fund manager, has grown increasingly aggressive in his interventions. In late July, he moved to support the yen and weaken the euro, catching the European Central Bank off guard. This week, Bessent warned the market against shorting the yen, telling investors "I am the house."
Mark Cabana, head of US rates strategy at Bank of America, said the market's disappointment with the buyback plan stems from the Treasury appearing "stingy and penny-pinching... completely at odds with a 'whatever it takes' policy stance." He added: "If you're going to intervene, you should care more about whether you can move the market toward your goal and hit the target level, rather than the price you're willing to pay. You can't have it both ways." Some investors say Bessent's intervention, while unexpected, is far too small to reverse the upward trend in yields, which is rooted in concerns about widening US deficits and lingering inflation risks. Bill Campbell, a fund manager at DoubleLine Capital, remarked: "I thought Bessent would understand that in any intervention, the first strike must be the strongest one. You have to come with enough heft."
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