Long-term Treasury yields have fully reversed the decline triggered by the US government's latest debt-management moves, with the bond market erasing in just two days the effect of Treasury Secretary Scott Bessent's announcement that the department would double its Treasury buyback program.

The 30-year Treasury yield rose by another 4 basis points on Friday (August 21) to 5.27%, having regained over two trading days the entire 10-basis-point drop recorded on Wednesday (August 19), when the buyback expansion was unveiled.

The announcement itself came in response to a stretch of stress in long-dated debt. On Monday (August 17), the 30-year yield had climbed above 5.30%, its highest level since June 2007 — a peak that, according to Wolf Street's Wolf Richter, spooked Bessent and prompted the second of two recent interventions, which has now also flopped.

Richter identifies two such measures, both designed to push down long-term Treasury yields: the "big kahuna" joint US-Japan yen intervention at the beginning of August, and Wednesday's announcement of the doubling of Treasury buybacks. The bond market, he argues, does not want to be played with — it has bigger, real problems, starting with the government's need to keep issuing and refinancing large volumes of debt.

The pace at which the interventions have lost their power has accelerated sharply. It took the market only two days to undo the one-day effect of the second intervention. Undoing the effect of the first, at the beginning of August, took almost two weeks. If a third follows, Richter suggests, its effect may be gone in a single day — and he has begun labeling the episodes "Hocus-Pocus 1," "Hocus-Pocus 2," and so on in order to keep track of them.

Seen across a longer horizon, the market spans the last 14 years of the 40-year bond bull market — when falling yields pushed bond prices higher — and the first six years of the current bond bear market, in which rising yields have driven prices lower. Investors who bought low-interest-rate long-term bonds at Treasury auctions in 2020 and 2021 are sitting on huge losses, in some cases exceeding 50% of those bonds' market value. Measured against that backdrop, the effects of the two interventions were so minimal and so brief that they get lost in the regular squiggles of the bond market.

The 10-year Treasury tells the same story. Its yield rose by another 5 basis points on Friday to 4.74%, having regained the entire Wednesday drop, and now sits just 1 basis point below its July 31 level of 4.75% — the high reached on the eve of the yen intervention and, at the time, the highest since January 2025. In Richter's phrase, the market is back to square one.

By historical standards, however, yields are not high. The record includes the final four years of the brutal bond bear market that ran through late 1981, the 40-year bond bull market that ran through August 2020, and the six years of the current bear market. Yields appear elevated only in the context of the Federal Reserve's interest-rate repression via quantitative easing, which began in late 2008 to deal with the Financial Crisis.

What pushed yields higher over the past three months was not some form of market dysfunction that needed to be straightened out with official interventions, Richter argues. It was, instead, supply: the government had to sell $1 trillion of new bonds to investors over the past three months to fund the new deficits, while at the same time refinancing the massive pile of maturing debt. Buyers demanded higher yields to be enticed off the fence.

Those buyers, Richter writes, demanded higher yields to overcome a set of triple fears: fears about future inflation and a lax Fed that will refuse to crack down on it, which wipes out the purchasing power of long-term bonds; fears about the unsustainable trajectory of the fiscal deficits, made even worse over those three months by the war in Iran and by the Supreme-Court-triggered tariff refunds; and fears about the flood of new debt that must find buyers at an eyepopping rate of $1 trillion every three to five months, come hell or high water.

On top of that, the government is now competing with the AI investment mania, which is also trying to find investors for bonds with much higher yields and much bigger risks.

The market, for its part, did its job: it absorbed the $1 trillion in three months, and the higher yields made that possible. But the higher yields buyers demanded for the onslaught of new Treasury debt, Richter writes, caused Bessent to blow a fuse — though he asks what else was to be expected as $1 trillion in new debt must be sold every three to five months despite all the risks piling up around the market.

The solution, Richter contends, would be fiscal consolidation, most of which has to be done in Congress. But Congress has become "a fiscal joke," in his words, as has the White House — handing out tax cuts left and right and firing up spending, including on the war in Iran. Lacking a real solution, Bessent came out with the interventions to push down long-term Treasury yields, and both were effective only for brief periods.

Bessent acknowledged as much in an interview with CNBC on Thursday morning, the day after the buyback announcement, admitting that a big part of the effort was jawboning the yields down. "Part of it is signaling here," he said, using versions of the word "signal" multiple times during the interview.

Richter casts Bessent as "the world's biggest bond salesman": to fund the deficits that are decided in Congress, the Treasury secretary has to sell these bonds — that is his job — and he wants to do so at the lowest possible yield. The analogy Richter offers is a used-car salesman who absolutely has to hit his quota and has to get high prices — low yields — even though the vehicles in inventory are not good enough to be sold at high prices. Customers are walking out; desperate to move the cars, the salesman puts on hocus-pocus shows instead of selling the vehicles at lower prices. But it does not take long for customers to see through the act — and then they get really worried, because now they are losing confidence.

The warning that frames the piece: if bond buyers lose confidence, they will demand even higher yields for the bonds Bessent has to sell. "He better watch out with his games."

Source: Wolf Street