Treasury Fights Back Against Bond Market Pressure

The US Treasury Department is facing a major financial battle in the bond market, with yields on long-term government debt reaching record highs. The 30-year Treasury yield reached 5.33% last week, its highest level since 2007, while the 10-year yield came close to 4.75%. This surge in interest rates has been driven by the imbalance in US public finances, with national debt surpassing $40 trillion and a budget deficit projected to reach 5.8% this year.

The Trump administration's chief economic adviser, Scott Bessent, is one of the minds behind the operation to defeat the Bank of England through market force back in 1987. Now, he is fighting from the government side, trying to prevent interest rates from rising further. The Treasury announced a shift in its market strategy last week, doubling its buybacks of long-term government debt, but this move has proven limited.

Analysts are skeptical about the impact of these measures, with some calling it 'running up a down escalator.' The additional buybacks are smaller than a standard Treasury auction and are being financed by issuing more short-term debt. Pimco, the world's largest bond manager, expects bouts of market volatility but does not foresee a debt crisis.

The US Treasury's intervention in the market is a challenge, as it needs to influence professional investors who dominate the $32 trillion bond arena. The Trump administration has shown a willingness to intervene directly in markets, but its ability to control long-term interest rates remains uncertain.