Bessent's Bluster and the Bond Market

Treasury Secretary Scott Bessent recently boasted that he is in control of the situation regarding the Japanese yen, stating 'I am the house now … And you can bet against me if you want.'

This assertion has raised eyebrows, especially considering his background working for George Soros during the 1992 speculative run on the British pound. At the time, British officials made similar claims, only to cave in under market pressure.

Bessent's declaration comes as markets test the US Treasury's attempts to push down interest rates. So far, these efforts have failed, with long-term interest rates rising across major economies.

A report from the European think tank Bruegel finds that interest rate increases are not unique to the US. In fact, 30-year yields rose by 45-79 basis points in the six months leading up to August 28th, with the US in the middle at 58 basis points.

The article suggests that rising interest rates may be more closely tied to a surge in demand for funds due to the AI boom rather than policy decisions. The spending on information technology is expected to surpass the late 1990s boom and has already led to higher long-term interest rates, even when inflation was low and there was a budget surplus.