Treasury Secretary Scott Bessent faces a growing credibility problem in the government bond market after two early interventions failed to deliver lasting calm.
Bessent insisted Thursday he has multiple tools at his disposal to quell liquidity problems in the government debt market and restore investor confidence.
The Treasury announced Wednesday it would at least double its bond buybacks starting in early September, initially sending yields tumbling as investors welcomed a backstop for longer-maturity government bonds.
However, yields at the long end quickly rose again Thursday as market experts expressed skepticism about whether the push would succeed against the many factors working against Treasurys.
Bessent appeared on CNBC with assurances that the intervention was aimed at providing market liquidity and not at trying to control the yield curve, but yields rebounded shortly after.
Evercore ISI analyst Krishna Guha called the plan “a weak form of Operation Twist” and warned the move “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.”
Guha added that the CNBC appearance “had minimal impact on the bond market,” reflecting how little the verbal reassurances moved sentiment among investors.
Bessent confirmed the buybacks could exceed $4 billion, but critics argued that figure would be rendered ineffective against the sheer scale of the Treasury market.
“We have a big toolkit,” Bessent said. “Part of it is signaling here and to show that we believe that the yields don’t reflect the underlying fundamentals.”
Among the options still available to Bessent are bigger and more frequent buybacks, smaller auctions of longer-dated debt, and changing the maturity composition of the government’s outstanding debt portfolio.
Guha warned, however, that shifting to shorter-dated issuance carries significant risks, noting “global investors know that struggling sovereigns often resort to shorter dated issuance.”
“We think the US is different from all others, but it is not different without limit,” Guha wrote in a client note, cautioning against leaning too heavily on that approach.
Markets have also begun using the term “Bessent put” to describe the Treasury’s interventions, with Guha suggesting the approach is “much more suited to the type of tactical guerilla operation to catch shorts off-guard.”
“The problem is that this may not have much lasting impact on where yields are a few months from now,” Guha added, casting doubt on the long-term effectiveness of that strategy.
Jefferies chief U.S. economist Thomas Simons complained that the buyback announcement itself broke with long-established Treasury communication norms by arriving outside the standard quarterly refunding process.
“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,” Simons wrote.
Simons also noted that “the sloppy wording of [the] headline on [the] release gave the impression that this was a hastily made decision,” further undermining confidence in the department’s handling of the situation.
Beyond communication missteps, Bessent faces structural forces including rising competition from corporate bond issuance, attractive yields from other sovereigns including Japan, oil price correlations that stoke inflation fears, and rising term premiums.
Atsi Sheth, chief credit officer at Moody’s Ratings, highlighted a deeper shift underway, saying “there has also been a structural shift in who buys U.S. government debt” as central banks shrink balance sheets and hedge funds play a bigger role.
The U.S. deficit-to-GDP ratio stands at nearly 6%, roughly triple its post-World War II average, while the national debt has surpassed $40 trillion, compounding the pressures Bessent is trying to manage.
“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,” 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,” Bianco added, summing up the challenge Bessent now faces with few easy options remaining.