The US Treasury unexpectedly said Wednesday that it will step up purchases of long-term government bonds, giving a stressed corner of the market more support.
The bond market responded immediately — then partially reversed course. The 30-year Treasury yield (^TYX) fell to 5.19% Wednesday, its biggest one-day drop in 10 months, before rebounding sharply early Thursday.
The dollar index (DX-Y.NYB) fell 0.75% Wednesday, its biggest drop since April 30, and was little changed Thursday….
Only two weeks ago, Treasury laid out its normal quarterly financing plan and left its long-term buyback cap at $2 billion. Wednesday, it said that cap would rise to at least $4 billion beginning Sept. 9 — well before the next scheduled update in November.
If the Treasury buys up more of its own bonds, it throws more money outward, in an attempt to reduce the longer-term interest rates that have been on the rise for much of 2026.
However, having an excess of dollars can drop the dollar’s value, and if the longer-term bonds are traded out for shorter maturities of bonds, more bonds come due in the short term, causing higher expenses when that happens.
And as you can see in the chart, the markets seemed to disregard Bessent's bond-buying plans, as yields of both the 10-year and 30-year bond durations went back up by 4 basis points on Thursday, while the DOW dropped by more than 700 points.
So what did Bessent do on Thursday afternoon in response? He doubled down and said the Treasury might throw out even more money!
Bessent told CNBC that the Treasury's buyback program of government debt could surpass the $4 billion announced on Wednesday.
"We are going to make a market in these. We routinely do buybacks, and we're going to increase the size of the buyback … it could be more than $4 billion per issue," Bessent said.
He noted that the Treasury is trying to signal support during a typically thin August trading session — particularly for the 30-year Treasury — at a time when massive corporate bond issuance is distorting the market, along with other factors.
"We have a big toolkit," Bessent added. "Part of it is signaling here to show that we believe yields don't reflect the underlying fundamentals of this Iran conflict. We will get on the other side of this."
I dunno, Scott. Higher deficits due to cutting taxes during a war do tend to raise interest rates, since more bonds need to be sold to pay for the increased deficits. And oil is now up nearly 27% since the 4th of July, as conflict in Iran drags on and the US’s Strategic Petroleum Reserve (SPR) continues to dwindle. That also seems to be a logical supply-and-demand reaction and not the distortion Bessent is claiming.
I sense panic from these guys, especially given that a sizable amount of AI companies and rich guys are so strung out on debt these days. If all of their circular financing becomes too expensive to pay off, then the music stops, and things might get freaky.
And I think Wall Street sensed the panic from the White House today, which is why the market had a big drop on a day where there wasn't a lot of negative earning or economic news. Or maybe they just got further confirmation that he's a complete dumbass who will try to BS his way through this one vs having a plan to adjust to reality.
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