When Scott Bessent assumed the role of US Treasury Secretary, he was openly critical of his predecessor's approach to reshaping the world's largest bond market. Yet, last week, he found himself attempting a similar maneuver.
Bessent announced plans to expand long-term Treasury buybacks, a move that would necessitate increased issuance of short-term securities. He described this strategy as the "Treasury's version of Operation Twist," a nod to the Federal Reserve's famous 1960s program designed to reshape the yield curve. He argued that current Treasury yields have strayed from their "equilibrium" levels.
The bond market did experience a "twist," but it lasted only a single day. Long-term yields fell sharply on Wednesday following the announcement but quickly rebounded. The 10-year Treasury yield, a key focus for Bessent, closed last week at 4.73%, hovering near its highest point since he took office.
These developments underscore that while the Treasury Secretary aims to reduce borrowing costs—especially with the November midterm elections approaching—powerful forces beyond his control are driving yields upward. These include escalating debt levels in the US and other developed nations, with one US debt metric surpassing the $40 trillion mark this week. Simultaneously, corporate bond issuance is surging, fueled by the AI boom.
Inflation has also intensified since President Donald Trump's military actions against Iran disrupted energy markets. Adding to investor anxiety is the confusing policy approach of Federal Reserve Chair Kevin Warsh. "Every path that could sustainably lower long-term yields is one the government wouldn't welcome," said Matt King, founder of Satori Insights. He noted that a reduced budget deficit, a stock market decline, or a drop in AI investment could bring long-term yields down.
Some market participants believe there was never a problem to begin with. Roughly an hour before Bessent announced the expanded buyback program, Edward Yardeni, the originator of the "bond vigilante" term, remarked, "I think we're back to normal interest rate levels, with 4% to 5% being the new normal." While the Treasury maintains its intervention is aimed at supporting liquidity, JPMorgan's interest rate strategy team noted on Thursday that "market functioning has improved significantly this year."
Bessent's vision for yield curve management—influencing interest rates across different maturities—extends beyond Treasuries to include the so-called "hyperscale cloud providers." These companies are heavily investing in AI and raising funds through debt issuance. Earlier this month, Alphabet Inc. issued bonds with maturities extending up to 40 years.
Bessent suggested these investments will eventually pay off through faster economic growth that doesn't stoke inflation, but acknowledged they are "creating short-term competition for capital." He added, "If I were a corporate CFO, I'd consider issuing more of what's called 'belly' bonds," referring to five-year maturities.
Bessent's apparent attempts to influence yield movements have sparked discussions about whether a "Bessent put" now exists—a term derived from the "Greenspan put," which referenced former Fed Chair Alan Greenspan's perceived tendency to support stock markets. While some, like Chris Turner, head of global markets at ING Groep NV, have used the phrase, many doubt Bessent has sufficient "ammunition" to achieve similar results in the bond market. The US Treasury did not respond to requests for comment on Bessent's bond market interventions.
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