Can US Debt Pressure Hold? Bessent Takes Action, Wall Street Sniffs Trouble

US Treasury Secretary Janet Bessent has seemed unusually busy lately. Within just one week, she first intervened to support the Japanese yen, then defended Federal Reserve (Fed) Chair Wally's new communication strategy, and the Treasury Department subsequently altered its wording on future long-term debt supply in its quarterly bond issuance plan. Though these actions appear unrelated on the surface, Wall Street is detecting the same signal: pressure on US long-term government bond yields may have grown so intense that the Treasury is now compelled to act.

US long-term government bond yields have recently risen to a 19-year high, driven not only by persistent inflationary pressures but also by the US government's nearly $2 trillion annual fiscal deficit and continuously increasing supply of new debt.

Rising yields don't just affect the bond market. The US 10-year Treasury yield serves as a benchmark for mortgage and corporate financing rates. If long-term yields continue climbing, borrowing costs will rise for governments, businesses, and households alike.

Priya Misra, portfolio manager at JPMorgan Asset Management, said the Fed and Treasury are clearly beginning to monitor long-term yield levels. Recent interventions in Japan's foreign exchange market, support for Wally, and potential reductions in long-term bond supply could all be signals from the Treasury indicating awareness of rising yields and a willingness to use various tools at its disposal.

First Move: Supporting Japan’s Yen Is Also About Easing Pressure on US Treasuries

On the surface, US intervention in the currency markets primarily aims to help Japan stabilize its exchange rate and prevent further yen depreciation. But from the perspective of the US Treasury market, this action carries another layer of meaning.

Japan is one of the world's largest foreign holders of US government bonds. When the yen depreciates sharply and domestic bond yields keep rising, Japanese investors may reconsider their overseas asset allocations. More importantly, if the Japanese government needs to intervene in the currency market to prop up the yen, it might have to sell US Treasuries to obtain US dollars and inject them into the forex market—adding extra selling pressure to an already strained US Treasury market.

Therefore, by directly helping Japan stabilize the yen, the US may indirectly reduce the need for Japan to sell US Treasuries in the future.

Bessent has also advocated expanding the Fed’s 'Foreign and International Monetary Authorities Repo Facility' (FIMA Repo). This tool allows foreign central banks to pledge US Treasuries as collateral to obtain US dollar liquidity from the Fed.

In other words, when overseas central banks need dollars, they can borrow them using US Treasuries as collateral instead of dumping those bonds directly into the market.

Peter Boockvar, Chief Investment Officer at OnePoint BFG, stated bluntly that as US long-term bond yields rise, the US Treasury market appears fragile enough that the Treasury is now encouraging foreign holders not to sell.

Second Move: Why Is Bessent Defending Wally?

Another notable action by Bessent was her defense of Wally.

Wally recently failed to clearly explain how and when the Fed would act to curb inflation during a post-meeting press conference, triggering a bond market selloff and raising doubts about his credibility on inflation control. As a result, yields rose rapidly—an issue Bessent could not ignore.

If markets believe the Fed cannot effectively control inflation, investors will demand higher bond yields to compensate for inflation risk. Once yields are pushed higher, they further increase the US government’s interest burden.

In a recent CNBC interview, Bessent said markets need a period of 'withdrawal' from reacting too strongly to Fed commentary and emphasized her belief that the Fed can balance economic growth with inflation control.

Third Move: Treasury May Reduce Long-Term Debt Supply

What truly raised red flags among bond investors was a subtle wording change in the Treasury’s bond issuance plan.

In past quarterly issuance plans, the Treasury stated it would continue assessing the possibility of increasing fixed-coupon and floating-rate bond issuance. This time, however, the word 'increases' was replaced with 'changes'.

For most people, this may seem like a minor linguistic tweak, but for bond markets, it could signal that the Treasury is now leaving open another possibility: it may not necessarily increase long-term government bond supply—and might even reduce it.

Long-term US Treasuries are currently the area where upward pressure on yields is most concentrated. If the Treasury adjusts the maturity mix of its debt issuance and reduces long-term supply, it could theoretically ease the burden on the market to absorb new bonds.

A BMO Capital Markets survey shows that 61% of clients now expect the next 30-year US Treasury auction size to shrink rather than grow—explaining why markets are paying close attention to this wording shift.

Bessent’s Series of Moves Face Three Tough Headwinds

The problem is that the Treasury’s ability to control the situation remains limited. The first challenge comes from stubborn inflation.

Over the past five years, US inflation has consistently exceeded the Fed’s 2% target. As long as investors remain concerned about inflation returning, they will be unwilling to hold US government bonds at lower yields for extended periods.

The second pressure stems from the US fiscal deficit. With an annual deficit nearing $2 trillion, the government must keep issuing large volumes of new debt. Tax cuts from the Trump administration are expected to further increase government debt over the next decade. This means that even if the Treasury wants to adjust the maturity composition of its debt issuance, it cannot fundamentally solve the problem of 'the US needing to issue massive amounts of debt.'

The third pressure comes from geopolitics. War-related oil price increases from Iran create new inflation shocks and heighten market fears that the Fed’s room to cut rates is constrained.

Amid these intertwined factors, the US 10-year Treasury yield has climbed to around 4.65%, exceeding levels seen at the start of Trump’s second term.

John Velis, US Macro Strategist at Bank of New York Mellon, said that under current government spending policies and war impacts, reducing pressure on long-term Treasury yields is not easy.

Phoebe White, Head of US Rates Strategy at UBS, believes Bessent’s approach may have limited actual impact on markets—but it signals one thing: the Treasury will consider using any tool available to prevent long-term yields from rising further.

While the US Treasury market is not on the verge of collapse, investors are noticing unusual signals. When long-term yields rise to levels that begin pressuring governments, businesses, and households, the US Treasury appears unwilling to stand idly by.

What Bessent may truly aim to do is not force US Treasury yields back down artificially, but to prevent inflation, fiscal deficits, massive debt supply, and geopolitical shocks from simultaneously escalating into a crisis that overwhelms the long-term US Treasury market.