US Treasury Secretary Scott Bessent appears to be taking new steps to stop US bond yields from rising further. Wall Street traders and strategists say his recent actions show that he is increasingly focused on easing pressure in the Treasury market. The pressure on the Treasury market has become a major concern for investors. Long-term US interest rates recently surged to their highest level in 19 years.
Higher long-term bond yields matter far beyond Wall Street. They can increase borrowing costs for homebuyers, companies and other parts of the US economy. Bessent made several moves within just one week that caught the attention of bond investors. Market participants see the moves as an attempt to control the rise in long-term borrowing costs, according to a Bloomberg report.
Bessent moves to lower bond yields
One of Bessent’s biggest moves was a decision involving Japan’s currency. The US intervened in currency markets to support the Japanese yen. It was the first US currency intervention of this kind since 1998. The move was aimed at helping Japan as the yen came under pressure. The intervention could also help the US Treasury market. Investors had been worried that Japan might have to sell US government bonds to raise dollars needed to support its currency.
Bessent’s next move came during the Treasury Department’s quarterly announcement on US debt sales. The department made a small but unexpected change in the language it uses to guide bond investors. Previously, the Treasury had said it was evaluating possible future “increases” in coupon and floating-rate note sales.
{{/usCountry}}Bessent’s next move came during the Treasury Department’s quarterly announcement on US debt sales. The department made a small but unexpected change in the language it uses to guide bond investors. Previously, the Treasury had said it was evaluating possible future “increases” in coupon and floating-rate note sales.
{{/usCountry}}In its latest statement, it instead said it was considering potential “changes”, according to Bloomberg. Bond investors interpreted that change as a possible signal that the Treasury could reduce the amount of long-term debt it sells.
Also read: Trumpflation could threaten Wall Street’s bull market: How the Iran war is keeping inflation high
Treasury may cut long-term debt
Investors are already betting on a possible reduction in 30-year Treasury auction sizes. A BMO Capital Markets survey found that 61% of clients now expect the next change in 30-year auction sizes to be a decrease rather than an increase.The bigger problem is inflation.
Bond investors are unlikely to accept much lower yields unless they become convinced that inflation is finally under control. But inflation has remained above that target for about five years. That long period of above-target inflation has made bond investors more cautious. They demand higher yields when they believe inflation could reduce the value of their future returns.
Inflation keeps bond yields high
Bessent is also trying to support the new Federal Reserve chairman, Kevin Warsh. Bessent has defended Warsh despite the market reaction. He said investors need a “detox” from constant Fed commentary and expressed confidence that the central bank would balance economic growth with its inflation-fighting responsibility, according to Bloomberg.
Bessent cannot simply order the central bank to cut rates. Trump’s pressure makes the Treasury market especially important for the administration. Even if the Fed cuts short-term rates, high long-term Treasury yields can keep mortgages and other borrowing costs elevated.
Trump wants lower interest rates
The US is already running very large budget deficits. The government is adding nearly $2 trillion to its deficit each year, creating a need to issue more debt. More government borrowing means more Treasury bonds entering the market.
If investors are not willing to buy that debt at current prices, yields can rise further. The Iran war has created another problem for the bond market. Higher oil prices caused by the conflict have created a fresh inflation shock.
Big US deficits add pressure
That makes it harder for the Fed to cut interest rates. The 10-year Treasury yield has risen to around 4.65%. That is higher than it was when Trump began his second term. Trump’s attacks on the Federal Reserve have also worried investors. Last week, Trump again revived his threat to fire Fed Governor Lisa Cook, according to Bloomberg.
Investors worry that such political pressure could weaken the Fed’s independence. If markets believe the central bank is being influenced by the White House, investors could demand higher yields to hold US debt. He wants lower long-term yields, but many of the forces pushing yields higher are outside the Treasury secretary’s direct control. But getting there will require more than pressure on the Fed or changes in Treasury bond sales.
For Bessent, the challenge is even bigger: he has to convince bond investors that the US can control inflation and manage its growing debt burden. So far, Bessent is showing that he is willing to act wherever the Treasury has room to act. But whether that is enough to bring long-term US yields down will depend largely on inflation, economic growth, government borrowing and the Fed. In simple terms, Bessent can try to calm the bond market — but he cannot control it.