Bessent Intervenes Repeatedly: Can U.S. Treasury Yields Be Suppressed? This Financial Game May Be 'Treating Symptoms, Not the Cause'

The U.S. Treasury has recently intervened repeatedly in financial markets, with its latest move being an expansion of long-term U.S. Treasury buybacks aimed at curbing the persistent rise in long-term bond yields. While this measure immediately pushed yields lower, it has also raised market concerns about the credibility of U.S. fiscal policy: when the government tries to lower borrowing costs, will investors really believe such actions if massive fiscal deficits and rising debt issuance needs remain unaddressed?

On Wednesday, the U.S. Treasury announced it would "at least double" the originally planned buyback size for 10- to 30-year U.S. Treasuries. This decision came just about two weeks after the Treasury unveiled its latest bond buyback plan, making the timing sudden and widely interpreted as a clear signal of growing unease within the Treasury over rising long-term yields.

Following the announcement, the 30-year U.S. Treasury yield briefly dropped about 9 basis points to 5.19%, and the long-term Treasury index rose 1.7% in a single day—the best performance since February 2025. The 10-year yield also declined by approximately 6–7 basis points.

On the surface, the Treasury’s action successfully boosted bond prices and lowered yields. But the key question is: is this a sign of market trust in policy, or merely a short-term trading reaction?

Why is Treasury Secretary Bessent so concerned about long-term yields?

Treasury Secretary Scott Bessent’s policy moves this year have shown a stronger market intervention stance compared to his predecessors.

In addition to expanding the Treasury buyback scale, the Treasury earlier this month signaled a potential reduction in long-term bond issuance. On July 31, the U.S. government intervened in the foreign exchange market for the first time in 30 years—an action widely interpreted as reducing Japan’s need to sell U.S. Treasuries to support the yen.

Earlier this year, U.S. officials also conducted so-called "rate checks," inquiring with banks about yen quotes—further evidence that the Treasury is increasingly actively monitoring financial market prices.

Mark Sobel, a former U.S. Treasury official now at OMIF, stated bluntly that Bessent is "definitely an interventionist-type" Treasury Secretary, a style colored by his background as a hedge fund manager. He believes both Bessent and the Trump administration are clearly worried about the continued rise in long-term bond yields.

There are valid reasons. The 10-year U.S. Treasury yield is a key financial market indicator set by Bessent himself. Recently, long-term yields have been pushed higher by inflation, the Fed’s policy direction, and the massive U.S. fiscal deficit—factors that not only keep mortgage rates high but could also pressure economic growth.

More importantly, these issues are unfolding against the backdrop of a continuously expanding U.S. fiscal deficit. With only two months left in the 2026 fiscal year, the cumulative deficit has already reached $1.8 trillion, 5% higher than the same period last year. Spending on Social Security, Medicare, Medicaid, and government debt interest continues to rise, defense spending is expected to increase, and Republicans are even discussing further tax cuts.

The U.S. government faces a growing contradiction: it needs to issue large amounts of debt to finance itself, yet it wants to lower long-term borrowing costs.

From 'Regular and Predictable' to Active Intervention: A Shift in Treasury Policy

This action has drawn significant market attention for another reason. The U.S. Treasury has long adhered to a 'regular and predictable' issuance principle, avoiding sudden changes in issuance strategy to prevent market volatility.

Bessent himself supported this principle in a Treasury market conference last November, stating his job was to "be the nation’s most important bond salesman," with Treasury yields serving as a key metric of success. Now, the Treasury’s sudden expansion of long-term bond buybacks represents a clear departure from its previously emphasized predictability.

Gregory Faranello, head of U.S. rates trading and strategy at AmeriVet Securities, said the decision clearly deviates from the 'regular and predictable' principle, but the message is unmistakable: the Treasury wants the market to stop pushing yields higher.

The Treasury restarted its bond buyback program in 2023, originally to improve market liquidity. Since traders typically prefer the most recently issued benchmark securities, older bonds tend to have lower liquidity. By buying back older bonds, the Treasury aimed to improve trading efficiency.

However, the timing of this buyback expansion is particularly sensitive. The Treasury had just announced its buyback schedule two weeks prior, and now suddenly announced at least a doubling of the long-term bond buyback size. This has led the market to speculate: if long-term yields continue to rise, will the Treasury next reduce long-term bond auction sizes?

JPMorgan Warns: Without Addressing Deficits, Lowering Yields Is 'Treating Symptoms, Not the Cause'

Markets remain skeptical about whether this policy can have lasting effects. JPMorgan argues that while expanding Treasury buybacks can provide short-term liquidity support, it does not address the fundamental cause of rising long-term borrowing costs: the massive fiscal deficit.

JPMorgan strategists, including Jay Barry, analyzed in a report that with the U.S. economy near full employment, the fiscal deficit still accounts for about 6% of GDP. Without genuine fiscal consolidation, the market may view the Treasury’s actions as "lacking credibility."

If the market perceives the Treasury as increasingly managing debt opportunistically and drifting from the 'regular and predictable' principle, it could actually push up the so-called 'term premium,' ultimately driving long-term yields higher again.

This is the biggest contradiction: the Treasury can influence supply-demand and yields in the short term through buybacks and issuance adjustments, but it cannot eliminate the government’s ever-growing financing needs with these tools alone.

JPMorgan estimates the U.S. will still face a financing gap of over $3.5 trillion in the coming fiscal years. In other words, even if the Treasury reduces some long-term bond auctions, the government will still need to raise massive funds, potentially requiring increased long-term Treasury supply in the end.

Therefore, JPMorgan believes the impact of this measure on long-term yields may be only temporary—unless the U.S. simultaneously takes steps to reduce its fiscal deficit.

Is This a Test of 'Fiscal Dominance'?

John Authers, senior editor and columnist at Bloomberg, interprets this event within a broader policy framework. He argues that U.S. financial markets are now facing a test of 'fiscal dominance'—where fiscal policy, led by the Treasury, is beginning to directly intersect with monetary policy, traditionally led by the Fed.

He notes that after the Fed released its meeting minutes, market reactions to officials’ potential rate hikes were relatively muted. In contrast, a relatively small Treasury bond buyback move clearly shook both bond and currency markets.

Authers points out that Bessent announced increasing the buyback size for 10+ year Treasuries from $2 billion to $4 billion. Compared to the Fed’s QE peak of $120 billion in monthly Treasury purchases, this is very small—more of a 'symbolic' policy.

He argues this measure does not change the long-term upward trend in long-term yields. In other words, investors notice the signal Bessent sent, but if the U.S. government truly wants to significantly improve financial conditions, symbolic measures are likely far from sufficient.

Not Just Bonds: The Dollar and Gold Also Reacted Sharply

Notably, the policy’s impact varied across markets.

U.S. equities reacted relatively flatly, with the S&P 500 rising only 0.21%. John Higgins of Capital Economics noted that in recent years, the core driver of the S&P 500 has been AI, not Treasury yields—hence the limited stock market reaction despite clear bond market volatility. But the dollar’s reaction was far more dramatic.

The dollar index posted its worst single-day performance in months, breaking below its 200-day moving average. Gold, meanwhile, posted its best single-day performance in six months. This combination—falling Treasury yields, a weaker dollar, and rising gold—reflects market skepticism about fiscal policy credibility.

Authers cites Robin Brooks, a senior researcher at the Brookings Institution, who observes that if the government artificially suppresses risk premia in long-term Treasury yields, the market may reflect that risk through another price: currency depreciation.

George Saravelos, FX strategist at Deutsche Bank, believes the expanded Treasury buybacks and the U.S. government’s recent stance on Japan’s yen intervention both indicate the Trump administration’s growing unease over rising long-term Treasury yields.

In this context, if Treasury prices are constrained by policy and cannot fully reflect risk, foreign investors’ holdings of U.S. Treasuries may be revalued through a weaker dollar.

The U.S. Treasury Is Challenging Two Massive Markets

Peter Boockvar, Chief Investment Officer at OnePoint BFG, stated bluntly that Bessent is now "engaging with two massive markets at once."