Bessent's Unintended Consequences: Yen Strengthens Beyond Expectations
US Treasury Secretary Bessent's recent market interventions have sparked controversy and concern among financial experts. In an effort to bolster the US dollar, he publicly warned against shorting the yen, which promptly strengthened, but this move was followed by a poorly received expansion of US Treasury buybacks aimed at holding down long-end yields.
The resulting market reaction saw the 10-year Treasury yield reach its highest level since October 2023, while the 30-year Treasury yield approached its two-decade peak. Experts have criticized the scale of the buyback as inadequate to deliver a significant impact on markets.
Bessent himself acknowledged that he cannot control the 'equilibrium' price of Treasuries and can only aim to slow down price swings and prevent negative narratives from spreading. Market experts warn that Bessent's actions may create a dual threat to the nearly four-year bull market in US equities, as a stronger yen disrupts carry trades and rising Treasury yields suppress valuations.
The yen has continued its upward momentum, touching 153.49 yen per dollar intraday after hitting its strongest level since February. This poses a significant risk to US tech stocks, which could experience pressure from unwinding carry trades.