Treasury Secretary Scott Bessent is bringing his hedge-fund playbook to the battle against soaring U.S. borrowing costs.
His surprise decision to double long-term bond buybacks briefly sent yields tumbling Wednesday, but by Thursday the bond market was pushing back.
Treasury said it would increase the maximum size of its repurchases of 10- to 30-year government bonds from $2 billion to at least $4 billion per operation.
At first, the announcement appeared to work. The 30-year Treasury yield, which hit its highest level since 2007 earlier this week, fell to around 5.19% Wednesday. By Thursday, it had climbed back as high as 5.27%.
Bessent can try to make the Treasury market run more smoothly. What he cannot do with a buyback is make the government’s borrowing needs disappear.
Bessent’s Hedge-Fund Playbook
Bessent spent decades betting on how governments would respond when their currencies or borrowing costs came under pressure. At George Soros’ hedge fund, he helped make more than $1 billion betting against the Japanese yen in 2013 before founding his own macro fund, Key Square.
As Treasury secretary, he recently found himself on the other side of that trade.
A weak yen threatened to force Tokyo, the largest foreign holder of U.S. government debt, to sell Treasuries to raise dollars. That would push American borrowing costs even higher.
On July 31, a photographer captured Bessent’s handwritten note calling for the U.S. to buy $5 billion to $10 billion worth of Japanese yen. The U.S. joined Japan in propping up the currency, while Bessent urged Tokyo to borrow dollars against its Treasury holdings instead of selling them.
Former Treasury Secretary Henry Paulson explained why helping Japan was in America’s interest: “We don’t need them selling Treasuries right now,” he said.
The objective was the same as Wednesday’s buyback announcement: ease pressure on the U.S. bond market.
Why The Bond Market Is Fighting Back
But neither intervention addresses the deeper forces pushing yields higher: federal debt above $40 trillion, persistent deficits, inflation concerns and heavy borrowing tied to the AI investment boom.
“We don’t think this can succeed, in isolation,” TwentyFour Asset Management portfolio manager Eoin Walsh told the Financial Times. “Interventions such as this look like a sticking plaster.”
Prediction-market traders also expect pressure on the benchmark 10-year Treasury. Polymarket assigns roughly a 66% probability that the 10-year Treasury yield reaches 4.8% before 2027 and a 27% chance it touches 5%.
The average 30-year mortgage rate stood at 6.67% in Freddie Mac’s latest weekly survey. Kalshi traders see a 64% chance it climbs above 6.9% this year and a 41% chance it tops 7%.
Higher yields increase mortgage rates, raise the government’s interest bill and pressure rate-sensitive technology stocks in funds such as the Invesco QQQ Trust (NASDAQ:QQQ).
A hedge-fund manager can walk away from a losing trade. The Treasury secretary has to keep funding the government.
Image: Shutterstock
Login to comment