- Bessent has built up the TGA to around $950 billion currently, compared with a stated goal under the Biden administration of around $550 billion to $600 billion.
- Since the end of March, the annual yield on ten-year Treasuries has risen from 4.32 per cent to 4.73 per cent, and the yield on thirty-year Treasuries from 4.9 per cent to 5.28 per cent.
- Bessent surprised markets by announcing that the Treasury will double its buybacks of long-term bonds starting next month, from $2 billion to at least $4 billion.
- Yields on thirty-year Treasuries initially fell from 5.29 per cent to 5.19 per cent, but by the end of the week they rebounded to 5.28 per cent.
- Two senior Treasury officials said the TGA could be used to fund the buybacks, providing considerable firepower to influence long-term yields.
- Analysts at ING criticized the scheme as 'rearranging deck chairs on the Titanic.'
- Bessent told reporters yields would come back down as traders realize 'we are focusing on fiscal consolidation' and restoring 'equilibrium.'
- Since the surprise announcement, bonds have retreated from an initial rally, sending yields higher, in part because of skepticism voiced by many market analysts about how effective the operation would be.
Treasury Secretary Scott Bessent is considering tapping into the nearly $1 trillion General Account to fund increased bond buybacks as long-term yields rise. The Treasury plans to double its buybacks from $2 billion to at least $4 billion, aiming to influence long-term bond yields.34
However, analysts express skepticism about the effectiveness of this strategy. Following the announcement, bond yields rose again, with the annual yield on ten-year Treasuries climbing from 4.32% to 4.73% and thirty-year Treasuries from 4.9% to 5.28%.2
Bessent's approach, termed a 'Treasury Twist', involves buying long-term Treasurys with short-term issuance. Yet, many market analysts believe this is merely 'rearranging deck chairs on the Titanic', as the overall market remains skeptical about the Treasury's limited resources.
Despite the Treasury's efforts, the deficit for the fiscal year 2026 is projected to reach $2.1 trillion, a significant increase from the previous year. Bessent's past experiences, including a notable bet against the pound in 1992, highlight the challenges he faces in managing the current economic landscape marked by soaring indebtedness and stubborn inflation.
As the Treasury navigates these turbulent waters, the consensus remains that achieving lower borrowing costs may be an uphill battle for Bessent and his team.
“Since the end of March, ten-year Treasury yields have climbed from 4.32% to 4.73%, and thirty-year yields from 4.9% to 5.28%, pushing mortgage rates up. Bessent's plan faces skepticism, with the CBO projecting a $2.1 trillion deficit for fiscal 2026.”
CNBC
