Treasury’s plan to boost bonds falls flat

Uncle Sam’s attempt to give its Treasury bonds a not-so-invisible hand isn’t working out as planned. The effect of Treasury Secretary Scott Bessent’s announcement this week that he would raise the limit on buying bonds back from investors to support the US bond market turned out to be as short-lived as your calligraphy hobby.

Bessent’s announcement on Wednesday that the buyback program would grow from $2 billion to at least $4 billion per operation followed a bond selloff that pushed the 30-year bond yield—which moves opposite to price—to 5.32% on Tuesday, the highest level since 2007. Many analysts interpreted Bessent’s move as an attempt to lower yields (along with closely correlated mortgage rates). But instead of sagging, they whipsawed:

• Yields came down to as low as 5.18% following Bessent’s initial announcement on Wednesday but then rebounded to 5.27% by yesterday morning.
• After Bessent told CNBC yesterday that the Treasury could use other tools to support bonds, yields dipped again—but only briefly.

Some analysts aren’t surprised. They say buying bonds doesn’t address the reasons investors are demanding higher premiums for holding US debt in the first place—which include fears that rising oil prices will reignite inflation and worries about ballooning government debt.

Fed Chair Kevin Warsh advocates for the opposite approach…saying the central bank should take a backseat to bond investors in determining interest rates.—SK