Bessent Buyback Plan Backfires, Inflation Bets Climb
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- Treasury Secretary Scott Bessent announced Wednesday the department will at least double its typical $2 billion debt buyback operation—begun in 2024—after 10- and 30-year yields hit levels not seen since before the 2008 financial crisis.
- Breakeven inflation rates jumped across the curve: the 10-year measure hit 2.34% on Thursday, its highest since June 10, with 5-year breakevens reaching the same level for the first time since June 16.
- The 10-year Treasury yield stood at 4.73% in Friday afternoon trading, up 3.4 basis points on the day and above the pre-announcement level, while the 30-year yield climbed 3.6 bps to 5.27%.
- Macquarie strategist Thierry Wizman estimated the buyback announcement pushed 10-year breakevens up 6-7 bps in a 'signaling effect' he called 'inflationary,' with the dollar losing nearly 0.9% on the week.
- Fed Chairman Kevin Warsh faces heightened market scrutiny ahead of his Aug. 28 Jackson Hole keynote, after his prior endorsement of a reduced Fed role in markets was read as dovish on inflation.
- Jefferies' David Zervos pushed back on the alarm, noting the 10-year note sits in 'one of the tightest ranges' seen in 20 years and calling a 4-5% 10-year 'a very constructive level of rates in a thriving economy.'
Why it matters: Bessent's well-intentioned liquidity move cost the Treasury credibility with inflation-sensitive investors: breakevens spiked 6-7 bps post-announcement and the 10- and 30-year yields closed Friday above their pre-buyback levels, per Wizman's read. With Warsh's Aug. 28 Jackson Hole keynote now carrying extra weight, a dovish signal could further stoke inflation expectations and undo the nominal yield stability Bessent was trying to engineer.
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