Top economists are sounding the alarm over Treasury Secretary Scott Bessent‘s expanded bond buybacks. Wharton Professor Jeremy Siegel has dubbed the yield curve manipulation the “Bessent twist,” while veteran strategist Ed Yardeni warns the intervention will “muck up things” for the Federal Reserve’s upcoming policy decisions.
The “Bessent Twist” and Damaged Credibility
In a recent weekly commentary, Siegel expressed strong reservations about Bessent’s strategy to alter the relative supply of short- and long-term securities.
He explicitly criticized the effort to influence the slope of the yield curve. “I call this the ‘Bessent twist,’ and I do not think it is a good idea,” Siegel wrote. The core issue, according to Siegel, is a looming policy clash.
While newly appointed Fed Chairman Kevin Warsh emphasizes allowing markets to send authentic economic signals, the Treasury appears interested in deliberately altering those very signals.
Siegel cautioned that long-term rates reflect vital expectations for inflation, economic growth, deficits, and risk premiums. He warned that attempting to manage this market could ultimately “damage credibility” if the intervention fails.
A Normal Market and Muddled Signals
The president of Yardeni Research echoed these operational concerns, emphasizing that recent yield spikes do not necessarily require intervention.
Yardeni argues that a 10-year bond yield between 4% and 5% is simply “back to normal” and a “sign of a healthy economy” that can handle current borrowing levels from both the government and technology hyperscalers.
However, Yardeni notes that the Treasury’s deployment of its extensive toolkit to suppress yields creates a severe headache for monetary policymakers. “It’s going to muck up things for Kevin Warsh because Kevin Warsh is looking for signals from the bond market,” Yardeni explained.
“And here the Treasury is using its toolkit to send a different message.” Ultimately, analysts fear this intervention creates a critical blind spot for the Federal Reserve right as it attempts to navigate its inflation outlook and clarify its reaction function for the market.
How Have Stocks and Bonds Performed?
At the last check, the 30-year Treasury bond yielded 5.19%, the 10-year Treasury bond was at 4.66%, and the two-year bond was at 4.21%.
The primary ETF specifically tracking the long end of the U.S. Treasury yield curve—including the 30-year benchmark bond—is the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT), which closed 0.62% higher at $82.56 on Monday. It was lower by 6.03% year-to-date, down 0.83% over the last month and 5.16% over the last year.
The S&P 500 index has advanced 11.58% year-to-date. Similarly, the Nasdaq Composite index was up 11.81%, and the Dow Jones gained 10.41% YTD.
On Monday, the SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 and Nasdaq-100, respectively, closed lower. The SPY was down 0.29% to $763.47, while the QQQ declined by 1.00% to $706.32. Meanwhile, the Dow tracker, State Street SPDR Dow Jones Industrial Average ETF Trust (NYSE:DIA), ended 0.27% higher at $533.65.
In premarket on Tuesday, SPY was up 0.47%, QQQ gained 0.93%, and DIA was 0.51% higher.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
Image Credit: THOMAS CORDY via Imagn Images
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