WASHINGTON
Treasury Secretary Scott Bessent's effort to address liquidity concerns in the government debt market has faltered. The Treasury announced Wednesday it would at least double bond buybacks starting in early September. Long-end yields initially fell but reversed sharply Thursday, exposing deep market skepticism about the intervention.
Bessent appeared on CNBC Thursday to frame the buybacks as a liquidity measure, not yield-curve management. Yields briefly steadied before accelerating higher again. Analysts said the appearance moved the market minimally.
The buyback size—potentially exceeding $4 billion—drew immediate criticism as insufficient. In a Treasury market with average daily trading volume in the tens of billions, the announced scale appeared token. Krishna Guha, Evercore ISI analyst, called the plan "a weak form of Operation Twist" with "little enduring impact." He added the move could "backfire if it is seen as signaling concern about the ability to fund longer-term at acceptable cost."
A more serious problem: Treasury's credibility. Thomas Simons, Jefferies chief U.S. economist, flagged the announcement itself as a breach of protocol. The buyback news came two weeks after the quarterly refunding announcement—outside Treasury's established cadence for policy shifts. This "break in communication strategy reduces the overall credibility of their guidance," Simons wrote. Market skepticism could compound credibility damage regardless of Bessent's next moves.
Long-duration yields surged this week as investors demanded greater compensation for government debt with a widening fiscal gap. Hedge funds have increased bearish dollar positioning while awaiting details on Bessent's promised fiscal plan.
Audrey Childe-Freeman, chief FX strategist at Bloomberg Intelligence, sees the buyback plan as dollar-negative. Traders are likely to interpret it as an attempt to suppress pricing of U.S. fiscal deterioration and undermine confidence in the Fed's inflation-fighting credibility, she said.
Not all strategists view the yield move as dysfunction. Lawrence Gillum, chief fixed income strategist at LPL Financial, characterizes the Treasury selloff as a necessary normalization from the era of near-zero rates rather than a crisis.
Bessent reiterated the Treasury has a "big toolkit" and promised a fiscal plan without specifics. He said the administration is identifying areas for budget cuts, including state programs where funds are "frittered away."
