Treasury Secretary Scott Bessent came to office blasting his predecessor for trying to re-engineer the world’s largest bond market. Last week he took a stab at it himself.
By buying back a swath of long-term US debt, which will require selling more short-dated securities, Bessent said Thursday he’ll be doing “what I would call a Treasury twist.” It was a nod to the Federal Reserve’s famous 1960s plan to rejigger Treasury yields. Right now, Bessent said, those yields are out of whack with “equilibrium” levels. (NB: reality is they have to get long rates down to save the system. The largest budget item is paying the interest on the 40 trillion national debt. They are desperate to get rates to 1% or 2% in these good times. As the debt et all time bomb explodes they will have to go to double digit interest rates.. Upcoming reports i am prepairing will explain)
Out of Whack? Ten-Year Yields Have Climbed Across the Globe
Elevated borrowing and inflation rates have sent yields to highest in years
All of this suggests that the Treasury chief’s drive to get borrowing costs down, especially with November’s midterm election looming, is running into forces beyond his control that are pushing them up. That includes record debt levels not just in the US, where one gauge surpassed $40 trillion this week, but across developed nations. There’s a surge in corporate issuance too, led by the artificial intelligence boom. Inflation has jumped since President Donald Trump upended energy markets by starting a war with Iran, and confusion over Fed Chairman Kevin Warsh’s strategy is adding to investor concerns. Bessent’s vision of yield-curve control, or influencing rates across different maturities, extends beyond Treasuries. It includes the so-called hyperscalers, companies pouring money into AI and borrowing to do it. Earlier this month, Alphabet Inc. sold bonds ranging up to 40 years. The apparent attempts to shape yields even prompted debate over whether there’s now a “Bessent put,” an echo of the old belief that former Fed Chair Alan Greenspan would always bail out the stock market. Chris Turner, global head of markets at ING Groep NV, was among those using the term this week, though many doubt that Bessent has the firepower to pull off anything similar for bond yields. In coming days, Bessent said he and White House budget chief Russ Vought “will be examining both on the revenue side and the cost side what we can do.” He suggested a crackdown on fraud, and reductions in transfers to states. Besides the Treasury’s interest bill — now running well in excess of $1 trillion a year — Social Security, Medicare and Medicaid spending are the main drivers of a fiscal deficit forecast at around 6% of GDP this year. Overhauling those entitlement programs is “a non-starter in the near term,” and even more so after November if Democrats win at least one chamber of Congress, Bianchi wrote. Warsh wants to revamp the central bank’s balance sheet, which currently features some $4.54 trillion of Treasuries. He’s also spoken of a new “Fed-Treasury accord,” without spelling out what that would involve.