Bessent's Bond Buying Blunder: Treasury Secretary Faces Market Backlash

Scott Bessent, the US Treasury Secretary, is facing a credibility problem in the bond market. In 1992, he was a trader at Soros Fund Management who helped convince the firm to bet against sterling when the UK government's budget did not add up. The pound eventually fell, and the lesson learned was that ministers do not get a veto over market prices.

Bessent is now trying to stop the long end of the Treasury market from running away from him with bond buybacks. Two weeks before the buybacks were announced, he spent billions buying yen to help Japan's economy without flooding the market with dollars and forcing Tokyo to dump US paper.

The aim was to support the yen without causing a fire sale, so Bessent asked the Fed to raise its short-term repo facility cap. However, the operation only bought a delay, and soon after, the yen was slipping back toward 160.

Now, the Treasury is doubling its buybacks of longer-dated US debt, which had been capped at $2 billion. Yields fell on the news but then climbed again. Reuters noted that inflation swaps rose, gold and crypto prices increased, and the dollar fell.