Investors are wondering what Scott Bessent is up to. At the start of the month, the Treasury Secretary’s ‘to-do’ list included purchasing $5 to $10 billion in Japanese yen. This week, he announced the Treasury would increase “by at least double” the size of buybacks for longer-dated securities—and is prepared to expand the “fiscal consolidation” of purchasing back the costlier debt.Analysts are generally nonplussed. The Japanese yen—while stronger against the dollar than in its June slump—has unwound to roughly the level it started the year at. The drift back to market-perceived fair value is “hardly surprising,” quipped UBS’s Paul Donovan.
Likewise, analysts fear Bessent’s bond battle this week will amount to very little: “Despite a series of efforts to thwart bond vigilantes, we believe these measures will struggle to offset either declining Fed credibility or rising rate expectations,” the BNP Paribas Markets 360 team wrote Wednesday.
Long-dated Treasuries drifted down since the announcement, but they remain relatively elevated. As such, Daniel Casali, chief investment strategist at wealth management firm Evelyn Partners, suggested: “If policymakers are serious about capping long-end yields, more intervention may be required. Indeed, to borrow from the movie Jaws: “We’re gonna need a bigger boat …” Investors may conclude that this week’s buyback announcement is not the last one needed to stop yields rising higher.”
