If at first you don’t succeed, try, try again.
That seems to be the mantra over at the U.S. Treasury Department.
On Wednesday, Treasury Secretary Scott Bessent announced the department plans to triple its long-term bond buyback program to $6 billion during its operation on Thursday.
Last month, Bessent signaled that the Treasury would increase its bond market intervention. Initially, he said the plan was to “at least” double operations from $2 billion to $4 billion beginning in September. Yields initially fell but quickly recovered.
Not content to be outdone by the markets, Bessent doubled down again, raising the September 10 buyback operation to $6 billion.
I doubt this is what he had in mind.
By Thursday morning, the yield on the 10-year Treasury had spiked to over 4.9 percent, a level not seen since June 2007.
Meanwhile, the 30-year yield spiked to 5.341. You have to go back to June 2004 to find a yield that high.
Subsequently, mortgage rates also spiked, climbing to the highest level since July 2025.
Mechanics and optics of the treasury buyback
In practice, the Treasury will purchase older long-term bonds on the open market and retire them. This increased demand will raise prices and lower yields. This benefits the federal government by lowering interest rates on newly issued debt on the long end of the curve.
The Treasury will fund the buybacks by selling shorter-term notes and bonds. In practice, the Treasury borrows money to buy debt from people who already lent it money so it can borrow more money from other people at a slightly lower interest rate.
This is imperative given that the federal government already shells out over $1 trillion annually in interest expense.
In the big scheme of things, this isn’t a big operation. Six billion dollars is a drop in the bucket in a $32 trillion bond market. Treasury describes the operation as a “liquidity intervention” to maintain “market plumbing.” However, we don’t have a “plumbing” problem, and the Treasury Department intervention doesn’t solve the fundamental issue.
But while the operation’s extent isn’t materially significant, the message Bessent sent with the move is.
And what is that message?
Desperation.
The Treasury Department is worried about the state of the bond market and its ability to continue funding the federal government’s borrow-and-spend binge.
That’s because demand for U.S. debt has tanked, and investors are demanding higher long-term yields due to ever-increasing federal deficits and inflation expectations.
After Bessent initially announced the increased buyback operation, Standard Chartered global head of research Eric Robertsen summed up the Treasury Department’s message to the markets.
“The only conclusion we can draw is that yields reached a level that they don’t like, and I think that suggests a willingness to try and control or intervene against natural supply and demand.”
PGIM Credit chief investment strategist, Robert Tipp, told CNBC the markets seemed disappointed that the Treasury didn’t make an even bigger move.
“At the end of the day, the Treasury is issuing a spectacular amount of securities, and they’re trying to control the price level at the back end of the curve with really what, in the big scheme of things, is not necessarily a major operation. When they came out and said we would be buying at least 4 billion, I think market expectations were kind of thinking six to 10, and they’ve come in at the bottom end of the market’s expectations. As a result, you’re seeing a negative reaction here in the market with the sell-off at the back end of the curve.”
Stanley Druckenmiller said Bessent is setting his feet on a slippery slope. Now that he’s intervened, it may well require increasingly larger buybacks just to keep a lid on the market.
“Once markets believe Treasury is defending a price, every rise in yields becomes a test of official resolve, and the operations must grow to survive the tests. Governments defending prices against fundamentals always lose. The only variable is how much they spend before conceding.”
Bessent defended his plans to “make the bond market move” during a speech earlier this week. According to the New York Times, he argued that markets were “misreading the fundamental dynamics of the U.S. economy,” noting that American bonds had outperformed the bond markets of many other countries. He emphasized that his job was to ensure markets were “not misreading the fundamental dynamics of the economy.”
“Now I try to slow things down, to get people to get out of their fever dream and look at the facts.”
However, the facts (about $40 trillion of them) are exactly why people are turning their noses up at U.S. debt. They don’t trust the U.S. will ever get a handle on its fiscal malfeasance. So, why should the world lend Uncle Sam any more money?
On top of that, they’ve watched America weaponize its currency. Many countries worry that the U.S. government could use its dollar assets as leverage. If you want to avoid getting the dollar carpet pulled out from under you, get the carpet out of the living room.
Impact on precious metals
The Treasury Department’s willingness to intentionally step in to suppress yields is bullish for gold and silver.
Since gold is a non-yielding asset, conventional wisdom holds that a higher rate environment is bearish for the yellow metal. Conversely, lower rates tend to create headwinds for gold.
The gold market reacted as one might expect. Gold soared on the news, pushing back above $4,400 an ounce on Wednesday.
Silver also charted a strong gain, rising above $67 an ounce.
Right now, the optics of this operation matter more than the scope. If markets take the Treasury at face value and interpret this as a plumbing fix, it’s unlikely to have significant impacts. However, if markets read between the lines and recognize it as transparent rate manipulation to control federal government buying costs, we could see a more significant pivot toward precious metals.
Be the first to comment