Nineteen days after intervening to support the yen (first joint intervention since 1998), Treasury Secretary Bessent this week set his sights on the Treasury market.
August 19 – Wall Street Journal (Sam Goldfarb, Brian Schwartz and Krystal Hur): “Treasury Secretary Scott Bessent has shown he’ll do unconventional things to get markets moving his way. His latest maneuver is his most radical yet. Facing an uncomfortable rise in longer-term interest rates, Bessent took action early Wednesday when the agency he leads announced that it would significantly step up purchases of government bonds as part of its existing buyback program. Markets quickly responded in a way they haven’t to Bessent’s previous moves, with stocks rising and Treasury yields falling sharply… A former hedge-fund manager who once specialized in analyzing geopolitical situations and economic data to make big-picture market bets, Bessent has cultivated the image of an unusually market-savvy Treasury secretary—not afraid to intervene in currency markets or cite market conditions when discussing how the government should conduct its borrowing.”
Last week’s CBB highlighted “an illuminating six trading sessions.” Basically, weaker consumer and producer inflation readings – and throw in a much-weaker-than-expected Retail Sales report – failed to spur a typical bond market rally/drop in yields. We can add five additional illuminating sessions.
After ending the previous week at 4.69%, 10-year Treasury yields closed Monday’s session at 4.72% – and traded as high as 4.75% intraday Tuesday (closed 4.71%). Thirty-year yields jumped to an intraday Tuesday high of 5.34% (19-yr high). Ten-year yields sank to 4.63% on Bessent’s Wednesday intervention announcement, with 30-year yields dropping as low as 5.18%. Yields gyrated a bit during the Treasury Secretary’s Thursday morning CNBC appearance (doubling the buyback size to $4bn per issue, “very good chance” the budget deficit has peaked, fiscal consolidation initiative soon…) – before ending the session at 4.71%. Ten-year yields then closed Friday at 4.73% (30-yr 5.27%) – up four bps for the week to the highest close since January 13th, 2025.
Bond market reaction was an ominous development, one we’ll return to. But I continue to soak up “Expect the Unbelievable,” a dynamic again this week underpinned by an interventionist administration. Bitcoin surged $15,400, or 24.6%, to surpass $78,000 – the largest percentage gain since March 2023. But for a truly spectacular short squeeze, look to an old Wall Street pandemic darling. Moderna, with its almost 50 million share short position, surged 177% Wednesday after reporting positive clinical trial results for a “breakthrough” melanoma cancer vaccine. The Goldman Sachs short index rose 2.2% Wednesday, versus the S&P500’s 0.2% increase.
Bessent’s “increasing, by at least double, the size of liquidity support buyback operations” energized the precious metals. Gold surged $181, or 4.2%, Wednesday, the biggest gain since February 6th ($185 – rally after 10% decline). Silver jumped 5.7% in Wednesday trading (largest gain since the 6.2% on June 11th). For the week, Gold jumped 5.2% and Silver surged 6.7%, with the Bloomberg Commodities Index gaining 3.8% to a three-month high.
CNBC’s Sara Eisen: “Finally, the big headline is going to be, of course, on the big bond announcement. So, you indicated at the top of the interview that you are willing to go bigger and do more if the market doesn’t cooperate. How far are you willing to go?”
Treasury Secretary Scott Bessent: “Well, again, it’s not if the market cooperates. It’s we will see what the conditions are, and we will analyze them then. But I am confident that once the market sees through and looks at the fundamentals – all we’re trying to do is get people to focus on the fundamentals and not trade the headlines during a quiet period in a thin market. So, we are trying to keep the market in equilibrium.”
As a career hedge fund operator, Bessent should know better than for the Treasury to attempt to dictate so-called “market equilibrium.”
August 20 – Financial Times (Amelia Pollard, Jill R Shah and Joshua Franklin): “Quant hedge funds had their worst day in more than two years, in a session that coincided with the US Treasury’s efforts to shore up the government bond market and sharp share price moves. Wall Street banks told clients this week that quant funds, which use computer-driven strategies to systematically trade across asset classes, were down significantly as markets remained volatile. Funds that had big exposures to the ‘momentum’ factor, or buying stocks that are already going up and selling those that are going down, were hit particularly hard. Goldman Sachs wrote… that its ‘global momentum’ index was well outside historical norms, with systematic long-short hedge funds down 1.4% as of 1pm Eastern time, their worst day in more than two years…”
Interestingly, the 30-year dollar swap spread jumped a notable 3.0 points on Bessent Wednesday (to a six-month high negative 70.5), the largest gain since March 16th (as the Iran war raged and crude traded to $102).
Back-to-back major market interventions raise a host of market issues:
More from Bessent’s Thursday’s CNBC interview: “…There’s nothing magic about the $40 trillion number. And we can grow our way out of that. So, but what we do want to signal is, I think that there’s been a lot of misinformation in terms of what’s going on with the deficit, what’s going on with the deficit to GDP.”
“Well, again, again, people have bad information. I have asymmetric information, so I think that the market should think, well, why would we have joined the Japanese in the intervention at this time? Do we know something the market doesn’t know that, in terms of being willing to do, you know what I would call a Treasury twist here in terms of the bond market? What do I know that the market doesn’t know?”
August 19 – Bloomberg (Greg Ritchie): “A surprise US Treasury announcement… is the most concrete evidence yet that the recent selloff in long-dated debt is concerning to Secretary Scott Bessent. The decision to at least double the size of the department’s bond buybacks was billed as a way to provide ‘greater liquidity support.’ Yet for Wall Street, the rationale was simpler: The Treasury was flexing the ‘big toolkit’ Bessent has long said was at his disposal to keep yields in check, a stated goal of the Trump administration. The announcement follows a string of Treasury decisions in recent weeks that suggested discomfort at its borrowing costs — which by one metric hit the highest since 2001 — and serves as a warning for investors betting on a further surge in yields.”
Importantly, the Trump administration has moved to manipulate market yields, with 10-year Treasury yields at only 4.70%, stock prices at record highs, and financial conditions quite loose. It’s worth noting that yields surged 250 bps to surpass 8.00% during the 1994 bond market deleveraging episode.
This was a mistake. Okay, Bessent has “asymmetric information.” But his and the administration’s already thin credibility is on the line. He should scrap the “grow our way out” of deficit problems and “misinformation” drivel. I get it’s now less than 11 weeks until the midterms, with hopes faded for Iran war resolution. It might simply be a case of Bessent choosing to be proactive to ensure that crisis dynamics are held at bay.
“‘Dollar Debasement’ Talk Returns.” “Bessent’s Bond Maneuvers Giving Global Debasement Trade New Life.” “Why is the Trump Administration Causing Turmoil in the Bond Markets?” “Bessent Plays Down Deficit Concerns.” “Trump Treasury Secretary Flails as National Debt Passes $40 Trillion.” “Bessent’s ‘Big Toolkit’ Leaves Investors Guessing About Next Treasury Surprise.” “Bessent Battles Markets.” “Scott Bessent Takes on Bond Vigilantes in $32tn Treasury Market.” “Treasurys’ Haven Status Fades.” “Is Bessent Facing a Bond Market Credibility Issue?” “Scott Bessent’s Credibility Dilemma.” “JPMorgan Team Sees Credibility Risk in Treasury’s Buybacks.”
Bessent certainly sparked important discussion and analysis, none encouraging. “Bessent’s Interventions Have Fizzled. The Real Problem Is the Deficit.” Analysis from Barron’s Randall W. Forsyth resonates.
There’s no doubt that the “Trump put” will now be used proactively and routinely. This provides great comfort to an increasingly vulnerable stock market speculative Bubble. The VIX Index closed the week at a carefree 15.13. With Trump administration intervention locked and loaded, market risk premiums hover not far from multiyear lows.
But assurance that the administration is keen to sustain Bubble excess is a far cry from confidence in sound policy with a prudent long-term focus. In his excellent Friday piece, “Bessent Must Envy When the Grownups Were in Charge,” Bloomberg’s John Authers drew from President Trump’s Wednesday Oval Office comments:
“We could have GDP of 10, 12, 15 times if they just leave us alone. Let interest rates go down. It’s a very unfair system. They should drop interest rates because it means we have a strong country and it’s all based on credit, meaning good credit, and we have the best credit and we’d pay off the debt very easily, very quickly.”
“We have a strong country, and it’s all based on credit,” spoken by any other government official would be deemed quite the Freudian slip.
It appears the bond market has commenced the process of imposing its will. The gullibility demonstrated during last year’s DOGE nonsense was a one-off. And as much as it will infuriate our cranky President, deficits will now start to matter. Bessent can refer to peak deficits and fiscal consolidation, but talk these days from this administration is especially cheap. Our Treasury Secretary is not confidence inspiring, while the credibility he still enjoys shrivels for plans that arise from his Oval Office sessions. Dismiss troubling debt “fundamentals” at all our peril.
When it comes to fundamentals, massive U.S. deficits are only part of the story. The same week when 30-year Treasury yields reached the high since 2007, French 10-year yields jumped another nine bps to a 17-year high of 4.13%. German yields gained five bps to 3.26%, the high since 2011. Italian yields rose 10 bps to 4.08%, within two bps of the high back to November 2023. UK yields added two bps to 5.04%, about 10 bps from highs back to 2008. Canadian yields gained eight bps to 3.76%, the high since November 2023. At 5.06%, Australian yields are back to within five bps of highs back to 2011. Japanese 10-year yields traded Tuesday at highs (2.95%) since 1996.
August 20 – Financial Times (Robin Wigglesworth): “Why have Treasury bonds sold off lately? The obvious answer is that Kevin Warsh isn’t exactly convincing investors that he is willing to do what it takes to bring inflation down to the Federal Reserve’s target. But there is another, subtler explanation: the Treasury buyer base has changed over the past decade, with the influence of more price-agnostic central banks ebbing and the importance of price-sensitive private investors increasing sharply. Alphaville touched upon this in a big post last week, which focused on the swelling hedge fund involvement in the US government bond market.”
Global phenomena are at play. Importantly, debt market supply and demand dynamics have begun to shift. With problematic deficit spending combining with unprecedented AI-related borrowing, markets face years of massive issuance. Meanwhile, there are nascent signs of waning demand – especially from the leveraged speculating community. Myriad risks, including war escalation and geopolitical, inflation, liquidity, and climate, now weigh on heavily levered global markets. At this point, rising global yields don’t even require deleveraging. A slowdown in new leverage is enough to rock supply/demand dynamics.
Which raises a critical question: Is Scott Bessent currently focused on averting mounting de-risking/deleveraging risks? Such a preoccupation would explain two major market interventions in 19 days – the yen and the Treasury market, both integral to historic global speculative leverage.
Bessent and the administration invite trouble. They have been compelled to go early to preempt market instability. There’s an air of desperation that will have markets on edge. It raises serious concerns about a fledgling debt crisis and a broader crisis of confidence. Things are coming home to roost. The reckless obsession with growth at any cost. Stock prices matter, while deficits don’t. Upcoming elections trump future consequences.
It’s all pro-Bubble, which at this extraordinary juncture equates to pro-“Terminal Phase Excess”. Bessent has significantly raised the stakes. This seemingly ensures the Fed’s balance sheet will be called into action, as the market challenges the Treasury’s control over market yields and currency stability. And this dynamic helps explain the week’s surge in precious metals and commodities prices.
Bessent has only worsened the Fed’s predicament. Kevin Warsh is off to a shaky start managing a deeply divided committee. With the Chair and Federal Reserve credibility at the greatest risk in decades, perceptions that Warsh might be aligned with Bessent and the administration could prove quite detrimental.
Bubble markets continue to demonstrate the inability to self-adjust and correct. Trump and Fed “puts” have been fundamental to distorted markets conditioned to disregard risk. This ensures a highly destabilizing adjustment dynamic, one I assume will unfold rapidly at some point. The stock market assumes “the fix is in” at least until the midterms. Bessent Gambit Part II, however, lowers the odds that Treasury and global bond markets go 11 weeks without a bout of de-risking/deleveraging. The Treasury Secretary’s “bring equilibrium” remark won’t age well.
“‘Bessent’s interventions do nothing to deal with fundamental vulnerabilities,’ said Matt King, macro strategist and founder of Satori Insights. ‘No wonder the market is turning back to debasement trades.’ Financial Times, August 21 (Nikou Asgari, Ramsay Hodgson and Madeleine Wright in London, and George Steer)
Meanwhile, more signs of overheating…
August 21 – Bloomberg (Jeffrey Sparshott): “US business activity grew at its fastest pace in more than four years as stronger demand and a rosier outlook fueled a wave of hiring. The S&P Global flash US composite purchasing managers index climbed to 56 in August…, the highest reading since April 2022… ‘US business is booming, with firms reporting the fastest output growth for over four years,’ Chris Williamson, chief business economist at S&P Global Market Intelligence, said… ‘Jobs growth has also shown a welcome revival in August, with employers gaining in confidence as concerns fade over the negative economic impacts of tariffs and the conflict in the Middle East,’ he said. Activity at service providers rose to 56.8, matching the highest level since March 2022.”
Original Post 21 August 2026
Categories: Perspectives