Bessent doubles Treasury buybacks to stem bond sell-off
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- Treasury Secretary Scott Bessent doubled the maximum buyback of long-term debt from $2 billion to at least $4 billion, reversing a sell-off that had pushed the 10-year yield to 4.74% and pushed 30-year mortgage rates near 6.75%.
- The 10-year yield fell to 4.65% after the announcement, with Treasury expected to fund the buybacks by issuing more short-term T-bills — a category that now makes up 22.2% of outstanding debt, above the ~20% ceiling recommended by the Treasury Borrowing Advisory Committee.
- Bessent sharply criticized predecessor Janet Yellen in 2024 for the same T-bill-heavy issuance strategy, accusing her of putting 'her thumb on the scale' to keep down the costs of overspending.
- Fed Chairman Kevin Warsh left investors uncertain at his July 29 press conference, expressing concern that inflation has remained above the Fed's 2% target for over five years but declining to raise rates.
- The federal budget deficit is on track to hit $2.1 trillion this year, with net interest payments reaching $963 billion in the first 10 months of fiscal 2026 — about 15% of fiscal spending.
- Economists Joseph Brusuelas of RSM and Brij Khurana of Wellington warned Bessent's approach could accelerate inflation, make debt servicing more sensitive to future rate hikes, and pressure the Fed to back administration fiscal policy.
Why it matters: Bessent's buyback is funded by issuing more short-term T-bills, making the $32.2 trillion federal debt more sensitive to future Fed rate hikes. With net interest at $963 billion and the deficit heading to $2.1 trillion, Treasury's yield manipulation directly conflicts with the Fed's inflation fight, and Warsh's remarks at Jackson Hole next week will show whether he resists or aligns with political pressure.
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