‘Don’t Get Caught Short’: Treasury Yields Resume Climb Despite Bessent Warning as Bitcoin Jumps

Treasury Buyback Boost Loses Punch in a Day

Bessent Says It Could Go Bigger, Floats ‘Treasury Twist’

‘The US Government Has Asymmetric Information’

Even after Washington warned investors not to fight it,

long-term yields resumed rising and Bitcoin surged

What’s happening in bond and asset markets now

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“People should think about this: What if the US government knows something the market doesn’t?”

Treasury Secretary Scott Bessent, who has taken on the task of restraining higher yields, effectively declared war on the bond market on Aug. 20. The remarks came one day after he announced plans to more than double long-dated Treasury buybacks to at least $4 billion per operation from $2 billion.

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Long-term yields, which fell 7 to 10 basis points on the surprise buyback announcement a day earlier, quickly reversed. The less liquid 30-year Treasury yield dropped from about 5.28% before the announcement to 5.18%, then rebounded to roughly 5.25%. The benchmark 10-year yield moved from 4.69% to 4.63%, then climbed further to 4.71%.

Bessent then returned to the airwaves. In an interview with CNBC, he said each buyback could exceed $4 billion and that “we have a big toolkit.” He went further, explicitly describing a strategy of issuing more short-term debt and buying long-term bonds to suppress long-end yields as a “Treasury Twist.” If he is willing to consider such steps, investors should ask whether the Treasury knows something the market does not, he said.

In effect, Bessent signaled more clearly that if long-term yields keep rising, the Treasury is prepared to intervene more forcefully. The message to the bond market was straightforward: investors who keep making one-way bets by dumping long-dated Treasuries and driving yields higher could get hurt.

Yields Rise Further as Gold and Bitcoin Jump

So far, the market has not moved the way Bessent wants. Yields briefly softened after his comments, then resumed climbing. The 10-year yield rose to 4.736% on Aug. 22. Stocks came under pressure again, aside from a handful of large semiconductor and AI hardware names with solid earnings. The dollar weakened, while gold, Bitcoin, energy and commodities extended gains. Bitcoin in particular surged nearly 20% in two days, climbing above $78,000 for the first time since May.

Under the traditional market playbook, higher yields are a negative for non-interest-bearing assets such as gold and Bitcoin. But when yields are rising, the dollar is falling, and gold and Bitcoin are climbing, it suggests this rate move has a different character.

Ray Dalio, who has long warned of a debt crisis, said the expanded buybacks signal US fiscal stress is nearing a critical threshold. If the current path continues, a crisis could emerge within three years, he said. He added that investors could reduce bond exposure, allocate 10% to 15% of portfolios to gold, and add a small amount of Bitcoin.

The move recalls last year’s “debasement trade,” which swept through Wall Street. The trade reflects capital moving into stores of value outside fiat currencies when concerns grow that heavily indebted governments will erode fiscal discipline and dilute the value of money. In that environment, more investors shun long-dated government bonds even as yields rise. That can keep upward pressure on rates.

Treasuries’ Safety Premium Is Eroding

There are several reasons behind the recent rise in yields. The first is inflation concern. There is no sign of a breakthrough in talks between Iran and the US, and global oil prices remain elevated. That has shaken the disinflation path markets had expected and kept alive uncertainty over whether the Fed could raise rates as early as September.

Bessent said core inflation excluding food and energy is easing across both goods and services. He added there is no sign that higher energy prices are feeding into core inflation through second-round effects. Even so, skepticism in the bond market is unlikely to fade quickly until the Iran situation is resolved and the downtrend in inflation is confirmed again.

The more fundamental issue is the fiscal deficit.

Governments around the world are issuing more bonds to cover interest costs, defense spending, welfare costs tied to aging populations, tax cuts and industrial policy aimed at AI. Politically unpopular austerity is barely part of the discussion.

That burden feeds directly into higher yields. Bond investors demand greater returns to absorb heavy supply. If they expect supply to keep growing, they begin betting immediately on lower bond prices and higher yields.

MIT professor Ricardo Caballero describes the shift as a move from a “safety premium” to an “absorption premium.” In the past, investors accepted lower yields simply because Treasuries were seen as the safest asset in the world. Now they are demanding even higher yields than high-grade corporate bonds as compensation for absorbing the flood of new issuance. He estimates that 30% of the 2.5 percentage-point increase in Treasury yields since 2015, or 0.75 percentage point, is due to that factor.

The burden is heavier at the long end. Investors demand more compensation for taking on uncertainty over inflation and Treasury supply across coming decades. That helps explain why long-term yields are rising faster than short-term rates. It is not just a US story. Long-dated and ultra-long government bond yields in Japan, Germany and the UK have also climbed to the highest levels in years or even decades.

A third structural factor is record corporate fundraising for AI investment.

Barclays projects US investment-grade corporate bond issuance will rise 32% this year from a year earlier to a record $1.9 trillion. As governments flood markets with sovereign debt to finance record fiscal deficits, big tech companies and hyperscalers are lining up to borrow for AI data centers, semiconductors and power infrastructure.

Some investors are beginning to prefer AI companies to the US government. Jeffrey Sherman, deputy chief investment officer at DoubleLine Capital, said rising long-term Treasury yields reflect competition in the bond market between private-sector AI investment and government borrowing. Investors now face a choice between lending to the US government for 30 years or lending to Microsoft for five years, and many will choose Microsoft, he said. Companies at least generate revenue when they spend, he added.

Treasury, Not the Fed, Takes Up the Twist

Bessent, effectively America’s chief Treasury salesman, cannot afford to let this trend continue. The US move in late July to coordinate with the Japanese government on foreign-exchange intervention to support the yen fit the same pattern. The aim was to prevent Japan from pushing US yields higher by selling large amounts of Treasuries to raise dollars for yen purchases.

The Treasury’s third-quarter borrowing plan released earlier this month also included language hinting at the possibility of reducing long-dated issuance going forward. The alternative would be to increase short-term issuance instead. If less long-dated debt reaches the market, long-bond prices can rise and yields can fall.

Bessent sharply criticized the same strategy when former Treasury Secretary Janet Yellen used it during the Biden administration, calling heavy reliance on short-term debt a gamble that raises rollover risk. But after the Trump administration took office, he carried the strategy forward.

The Treasury may go even further by raising the share of short-term debt issuance more aggressively. That is the idea Bessent was pointing to when he explicitly referred to a “Treasury Twist.”

The term echoes the Fed’s old Operation Twist, with the Treasury replacing the central bank as the lead actor. Under Operation Twist, the Fed reduced short-dated Treasuries and bought longer-dated ones to push down long-term yields. Under a Treasury Twist, the Treasury issues more short-term debt and uses the proceeds to buy long-term bonds, effectively reshaping the maturity profile of its debt.

The objective is the same: reduce the supply of long-dated bonds in the market, lower long-term yields and ease pressure on corporate investment and the housing market. With Fed Chair Kevin Warsh reluctant to expand the central bank’s balance sheet, the Treasury appears to be preparing to take the lead.

Even with larger buybacks, the scale amounts to just 2.4% of outstanding Treasury debt, limiting the market impact. By contrast, the Fed’s Operation Twist in 2011 and 2012 reached as much as 19%. For the Treasury alone to buy that much long-dated debt, it would have to shift the maturity structure of issuance itself toward shorter-dated securities.

Krishna Guha, vice chairman at Evercore ISI, said countries under stress often rely on short-term issuance. The US likes to think it is different from other countries, he said, but that difference does not last forever.

Bessent’s Answer: Grow Out of the Debt

Bessent clearly understands that reliance on short-dated debt cannot rise indefinitely. That is why he first reached for larger buybacks and verbal intervention.

But repeated use of the so-called Bessent put is dulling its effect. It could even backfire by pushing yields higher because of cracks in investor confidence.

Thomas Simons, Jefferies’ chief US economist, criticized the way the larger buyback plan was announced. The Treasury said nothing about it when it released its quarterly borrowing plan just two weeks earlier, then abruptly changed the buyback program. That, he argued, undermines the Treasury’s decades-old principle of “regular and predictable” debt management.

Guha described the move as a “tactical guerrilla operation” aimed at ambushing Treasury short sellers and preventing one-way positioning. But guerrilla tactics cannot last forever. They may slow an excessively rapid rise in yields, he said, but are unlikely to have a lasting effect on the level of yields several months later, when fundamentals reassert themselves.

Jay Barry, a rates strategist at JPMorgan, also said the market will not trust bigger buybacks without real fiscal consolidation. If the Treasury keeps sidestepping a direct solution and moves further away from predictable principles, term premiums and long-term yields could rise further, he said.

Bessent is not arguing that buybacks alone can solve the debt problem. Since the start of the Trump administration, he has repeatedly said the fundamental answer is to “grow our way out” of the debt burden. If the US economy and tax revenue grow faster than debt, the burden relative to gross domestic product can fall even if the absolute level of debt keeps rising.

In the CNBC interview, Bessent said the $40 trillion national debt is not a particularly meaningful number on its own and that the US can escape the burden through growth. He said the recent increase in fiscal deficits reflects larger tax incentives aimed at encouraging corporate investment. Those incentives reduce tax revenue in the short term, but they are the cost of investing in future growth that will expand productivity and the tax base over time. In his view, a nation’s wealth ultimately depends on how much it can raise after-tax returns on capital.

‘If It Gets Worse, the Fed Will Step In’

Bessent also acknowledged that, for now, heavy corporate bond issuance tied to AI and data-center investment is creating short-term competition for capital between the government and companies. But he argued that if the investment lifts productivity, it will expand supply in the economy and lead to disinflationary growth. The view is similar to that of Fed Chair Kevin Warsh.

Bessent said he would soon discuss fiscal-consolidation measures with the White House Office of Management and Budget. He also said the Treasury would “work with” the Fed on bond-market issues if necessary.

Some in the market believe that if the current rise in yields cannot be contained, the Fed will ultimately have to intervene directly. Charlie McElligott, a cross-asset strategist at Nomura Securities, said the bigger buyback plan amounted to putting a Band-Aid on a gunshot wound. If inflation and higher yields begin to inflict serious damage on the real economy, the Fed could eventually move to yield-curve control, or YCC, or direct quantitative easing, he said.

Bessent Says It’s All Noise for Now

Bessent’s grow-out-of-the-debt thesis is internally coherent. The question is how long markets are willing to wait. Productivity gains and tax-revenue growth take time. Rising Treasury and corporate bond supply, swelling interest costs and inflation pressure are already here.

Investors are closely watching whether the latest rise in yields is temporary or part of a shift toward a new normal of 5% rates. Experts say it is still too early to call it a structural break in the Treasury market. Sherman said the first test is whether the 10-year Treasury yield breaks above 5% and holds there, and whether the entire yield curve shifts higher.

Speed matters as much as level. If yields rise in an orderly way while US growth remains intact, asset prices can gradually adjust to a higher-rate environment. But if yields spike in a short period, that could trigger broad deleveraging across stocks, corporate bonds and other assets.

It is also critical to identify what is driving the rise in yields. If high rates become entrenched, equity markets may differentiate more sharply between companies supported mainly by broad growth expectations and those that can demonstrate real productivity and cash flow. And if mistrust in government debt and fiat currency is what pushes yields higher, the debasement trade into stores of value outside the dollar, including gold, Bitcoin and commodities, could strengthen.

Bessent said markets are overreacting because it is August and people do not have much to do. He dismissed the rebound in yields just a day after the larger buybacks and verbal intervention as nothing more than noise. He also said he would hold a press conference on Aug. 24 with what he called “asymmetric information” unknown to markets that could be used to pressure Iran economically.

September, when trading volumes pick back up, is approaching. The next test is whether markets keep betting on a move toward 5%, or whether Bessent’s big toolkit can slow that momentum.

Bin Nan-sae, Hankyung.com reporter binthere@hankyung.com