Treasury Buybacks Fail to Keep Long-Term Yields Down, Underscoring Limits of Bessent Plan

The U.S. Treasury expanded buybacks of long-term government bonds to stabilize long-term yields, but the effect faded within a day, highlighting the limits of the government's strategy to hold down borrowing costs.

Bloomberg reported on Aug. 23 that Treasury Secretary Scott Bessent is pursuing a so-called Treasury twist, buying longer-dated debt while increasing issuance of short-term securities. The plan is intended to ease supply pressure on long-term bonds and pull down long-term yields. Bessent has argued that Treasury yields are above their equilibrium level.

The market reaction did not last. Long-term yields fell sharply after the Treasury announced the expanded buybacks, only to rise again the next day. The 10-year Treasury yield, a key benchmark for Bessent, finished last week at 4.73%, near its highest level since he took office. The move higher has been driven by U.S. national debt surpassing $40 trillion, heavy corporate bond issuance tied to expanding investment in artificial intelligence, and stronger inflation pressure following the U.S.-Iran war.

Investors say Treasury purchases alone will struggle to push long-term yields lower on a sustained basis. Matt King, founder of Satori Insights, said any route to a lasting decline in long-term yields would require outcomes the administration does not want. That could mean a smaller fiscal deficit, a drop in stocks or slower AI investment. JPMorgan also said the effect of buybacks on yields may remain limited unless the deficit problem is resolved.

Questions are also mounting over whether policies aimed at artificially lowering long-term yields can be sustained while the U.S. government is running a fiscal deficit equal to about 6% of gross domestic product. Bessent said markets are reacting to "misinformation" about the fiscal outlook and that officials are reviewing measures to strengthen public finances on both the revenue and spending sides. Evercore ISI, however, said realistic options to meaningfully reduce the deficit are limited for now.

Ultimately, the market still holds the upper hand in determining the direction of long-term yields. Priya Misra, a portfolio manager at JPMorgan Asset Management, said rising yields are a rational development given the resilience of the economy and the global competition for capital.