Bessent's buyback plan and CNBC pitch failed to calm Treasurys. He could turn to the Fed, bigger purchases or a shift in new issuance toward shorter-dated bills.
Alpha Score of 67 reflects moderate overall profile with moderate momentum, moderate value, strong quality, moderate sentiment.
Treasury Secretary Scott Bessent insisted Thursday that he has multiple weapons at his disposal to quell liquidity problems in the government debt market. So far, the two he has deployed haven't worked.
The Treasury announced Wednesday that it would at least double its bond buybacks starting in early September. Yields on longer-dated Treasurys tumbled at first as investors cheered the backstop. The reaction reversed Thursday as analysts questioned whether the program was big enough to move a $28 trillion market.
Bessent went on CNBC Thursday to argue the intervention was about liquidity, not yield-curve control. Yields dipped briefly, then bounced back. Evercore ISI analyst Krishna Guha called the appearance "minimal impact."
"We have a big toolkit," Bessent said on the network. "Part of it is signaling here and to show that we believe that the yields don't reflect the underlying fundamentals."
The Treasury chief confirmed the buybacks could exceed $4 billion. Guha called that "a weak form of Operation Twist" – the Fed program that swaps long-dated bonds for short-term bills – and said it "in itself will have little enduring impact and could backfire if it is seen as signaling concern about the ability to fund longer-term at acceptable cost."
The announcement broke with Treasury tradition. It came two weeks after the quarterly refunding announcement, where the department gave no hint it was considering changes.
"This breaks with Treasury's long-held strategy of making 'regular and predictable' announcements, and using the Refunding to announce almost all of their policy changes and guidance," Jefferies chief U.S. economist Thomas Simons wrote. "We do not think it is hyperbole to say that this break in communication strategy reduces the overall credibility of their guidance."
Simons said "the sloppy wording of [the] headline on [the] release gave the impression that this was a hastily made decision."
The forces pushing yields higher go beyond any single announcement. Rising competition from corporate bond issuance, attractive yields from Japan, a correlation with oil prices that feeds inflation fears, and rising term premiums – the extra yield investors demand for longer-dated debt – are all adding pressure.
A deeper shift is underway in who buys U.S. government debt.
"There has been a structural shift in who buys U.S. government debt," said Atsi Sheth, chief credit officer at Moody's Ratings. "As central banks shrink their balance sheets and traditional duration buyers reach the limits of how much additional issuance they can absorb, new buyers, such as leveraged hedge funds running relative-value strategies, are playing a bigger role."
The fiscal backdrop is not helping. The deficit-to-GDP ratio sits near 6%, roughly triple its post-World War II average through the Covid pandemic. The national debt just passed $40 trillion. President Donald Trump wants tax cuts, and Congress shows few signs of spending restraint.
Bessent said he and Office of Management and Budget director Russell Vought will meet soon to discuss "fiscal consolidation" – the term for reducing deficits.
"It's that combination of the deficits, the borrowing needs, inflation expectations, not really knowing what future Fed policy is going to be, and the sustainability of being able to issue higher, ever higher, levels of U.S. Treasury debt, and what rates those need to be at," said JoAnne Bianco, senior investment strategist at BondBloxx. "There's just the idea that there needs to be a higher risk premium for all the issuance."
What could Bessent try next? He could seek cooperation with the Federal Reserve. Though Fed Chairman Kevin Warsh has stressed the importance of letting the market set rates, Bessent suggested Thursday that the two entities "would work together" on bond market complications as the central bank manages its own Treasury holdings.
Other options include scaling up the buyback program further, extending its maturity range, or shifting the mix of new issuance toward shorter-dated bills – a move that would ease supply pressure at the long end.
None of these are guaranteed. The risk, as Simons noted, is that efforts to suppress longer-end yields give investors another reason to demand more compensation.
The market has seen Bessent's first moves and is not impressed. The question now is whether his next ones will be different.
Prepared with AlphaScala editorial tooling from the source reporting linked above. Indexable analysis may include a cited Alpha Score value. Publishing checks screen each story before release. Educational coverage, not personalized advice.