Bessent's $6 billion bet

These days, fixed income aficionados are divided on one central question: To what extent should the government interfere in the flailing bond market?

Today, the Treasury Department said it will buy back up to $6 billion of government debt on Thursday in an effort to stabilize the bond market. That’s roughly triple the amount that the government typically buys back during these operations. The announcement isn’t exactly a surprise, given that Treasury Secretary Scott Bessent said in August that the Treasury would at least double the size of its longer-dated buybacks.

The reason, according to Bessent, is to add liquidity to the market for 10- and 20-year notes. But his true goal is to suppress Treasury yields, which have skyrocketed over the past few weeks thanks to a combination of inflation fears, rising oil prices, and renewed panic about the ballooning national debt.

But many investors are critical of the government playing God. In an op-ed in the Wall Street Journal, famed investor and former Bessent mentor Stanley Druckenmiller criticized the move, arguing that it would prove futile. “Governments defending prices against fundamentals always lose,” Druckenmiller wrote. “The only variable is how much they spend before conceding.”

The ironic part: Treasury traders were anticipating a buyback ranging from $6 billion to $10 billion. Bessent’s decision to come in at the lower end spurred Treasury yields to new heights this afternoon.

Bessent is the captain now

Bessent’s interventionist approach isn’t stopping at a Treasury buyback, either. He didn’t mince words when defending his move to prop up the Japanese yen, arguing that bond traders essentially need to shut up and trust that he knows what he’s doing.

“I am the house now, so when we intervene with the Japanese yen, I have pretty good insight into what the Bank of Japan is going to do,” Bessent said at an event yesterday. “And you can bet against me if you want,” he added.

Given that Treasury yields rose to their highest level since 2023 after Bessent’s buyback announcement, it seems like a lot of traders are taking him up on that.—LB