I. Bessent Intervening
On August 19, Treasury Secretary Scott Bessent announced an expansion of the Treasury's buyback program in the long end of the yield curve. Today, the Treasury unveiled a $6 billion buyback operation in the 10- to 20-year sector, with Bessent stating that the goal is to ensure "that there is not a bad, big adverse outcome" in the Treasury market.
However, the market remained unconvinced, with the 10-year Treasury yield rising to 4.85%, its highest level since November 2023. Investors remain focused on the fundamentals supporting elevated long-term rates, including robust consumer spending, an AI-led capital spending boom, huge federal deficits, and inflation stuck above the Fed's target.
Nevertheless, we continue to expect the 10-year yield to remain in the back-to-normal 4.00%-5.00% range (chart). If so, Bessent may be overreacting because he fears more than we do that the Bond Vigilantes will drive yields above 5.00%. Bessent is talking loudly and carrying a big stick. The "Bessent Put" raises the odds that 5.00% won't be breached, making bonds at these levels more attractive.
