Treasury's Bond Market Intervention Sparks Fear of Interest Rate Hike
US Treasury Secretary Scott Bessent has announced that his department will double its purchases of long-dated Treasury bonds from $2 billion to $4 billion, in an effort to drive up bond prices and weigh down yields at the long end of the curve.
This move is a surprise intervention into the bond market, which has seen 10- and 30-year Treasury yields soar to near-multidecade highs. The 30-year yield hit a 19-year high recently, with the last time it was this high being in 2007, just before the global financial crisis.
Fed Chair Kevin Warsh is facing a challenging situation as a result of this intervention. He had been relying on higher bond yields to combat above-average inflation, but now the Treasury's actions may force him to raise interest rates instead.
The FOMC has not changed its federal funds target rate in recent months, despite higher bond yields making it costlier to borrow capital. Warsh had attributed this reaction to 'market participants learning to play the ball, not the referee', but the Treasury's intervention may throw this dynamic out of the window.