US Treasury Secretary may have a tough time dealing with yields

Treasury secretary Scott Bessent came to office blasting his predecessor for trying to re-engineer the world's largest bond market. This week he took a stab at it himself.

By buying back a swath of long-term US debt, which will require selling more short-dated securities, Bessent said Thursday he'll be doing "what I would call a Treasury twist." It was a nod to the Federal Reserve's famous 1960s plan to rejigger Treasury yields. Right now, Bessent said, those yields are out of whack with "equilibrium" levels.

And twist Treasuries did - for a day. Yields on the long bonds dropped sharply on Wednesday after the plan was announced. But then they climbed straight back up. Bessent's favoured 10-year benchmark closed the week at 4.73%, near the highest since he took office.


All of this suggests that the Treasury chief's drive to get borrowing costs down, especially with November's midterm election looming, is running into forces beyond his control that are pushing them up.

That includes record debt levels not just in the US, where one gauge surpassed $40 trillion this week, but across developed nations. There's a surge in corporate issuance too, led by the artificial intelligence boom. Inflation has jumped since President Donald Trump upended energy markets by starting a war with Iran, and confusion over Fed chairman Kevin Warsh's strategy is adding to investor concerns.

"Every route to lasting relief for the long end runs through something the administration doesn't want," said Matt King, founder of Satori Insights. He said a smaller US budget deficit, a slide in the stock market or a decline in AI investment could bring longer-term yields down.

'Back to Normal'

Some market participants don't reckon there was anything out of whack to begin with.

"I think we are back to normal interest rates, 4% to 5% is normal," Edward Yardeni - who coined the term "bond vigilantes" - told Bloomberg TV about an hour before Bessent's shock move. And while the Treasury said its intervention was to support liquidity, JPMorgan Chase & Co.'s rates strategy desk reported Thursday that "market functioning has improved notably this year."

Bessent's vision of yield-curve control, or influencing rates across different maturities, extends beyond Treasuries. It includes the so-called hyperscalers, companies pouring money into AI and borrowing to do it. Earlier this month, Alphabet sold bonds ranging up to 40 years.

The investment will pay off eventually in the form of faster and non-inflationary economic growth - but meantime "it is causing a short-term competition for capital," the Treasury chief said this week. "If I were sitting in the chief financial officer's seat, I would think about issuing more what's called the belly debt," or five-year maturities.

The apparent attempts to shape yields even prompted debate over whether there's now a "Bessent put," an echo of the old belief that former Fed chair Alan Greenspan would always bail out the stock market.

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Chris Turner, global head of markets at ING Groep NV, was among those using the term this week, though many doubt that Bessent has the firepower to pull off anything similar for bond yields.

The Treasury didn't respond to a request for comment about Bessent's bond-market interventions.

'Bad Information'

Addressing the climb in Treasury yields, Bessent said investors are acting on "bad information" while he has "asymmetric" access to the real picture.

"There's been a lot of misinformation in terms of what's going on with the deficit," he said, vowing to refocus attention on what he described as Trump's fiscal-consolidation program.