Why A Chorus Of Market Pros Is Criticizing The Treasury's Plan To Tame The Bond Market

• The Treasury's planned interventions in the bond market have drawn criticism from market pros.
• High-profile critics includes billionaire Stanley Druckenmiller and several top economists.
• The opposition stems from the belief that it works against the market, and won't address real problems.

Treasury Secretary Scott Bessent's plan to calm the US bond market isn't going over well with some veteran market watchers.

Last week he said the US Treasury could double its purchases of long-dated bonds to $4 billion, while CNBC reported that it could also tap the $1 trillion General Account to fund more bond buys.

The moves, meant to tamp down yields that have been rising in response to inflation fears, sparked ire from Bessent's former mentor, billionaire hedge fund founder Stanley Druckenmiller. In an op-ed, the famed investor said policy makers should let the market function without the government intervening.

"The announcement came after the 30-year yield touched a 19-year high. Yields fell within minutes," Druckenmiller wrote. "By the next afternoon they had round-tripped to levels above where they started. The market's verdict was swift and correct: This wasn't liquidity management, it was price management."

Druckenmiller wasn't the only finance pro to sound off on Bessent's bond-market maneuvers. Torsten Sløk, the chief economist at Apollo Global Management, agreed with Druckenmiller's criticism, writing on Wednesday that the moves won't do much to wrangle bond yields lower for reasons beyond Bessent's control.

"The fiscal outlook, a Fed considering a rate hike, and hyperscaler issuance crowding out demand for Treasuries all point the same way," he noted. "The bottom line for investors is that interest rates are going to stay higher for longer. Or, as Druckenmiller puts it, the long-term Treasury yield is the only fiscal disciplinarian the US has left."

Former PIMCO co-CIO Mohamed El-Erian highlighted problems that he sees with the government's response to the recent selloff.

El-Erian, who has frequently warned of problems in the bond market, noted that the Trump administration may be tempted to intervene to lower yields, though this may lead to further complications, citing Bessent's plan. He added that this type of direct market intervention could compromise public trust in the Treasury at a critical time.

"While this buys time for that segment of the market, it requires the government to issue more shorter-term bonds, risking unintended consequences for the functioning of liquidity markets," El-Erian wrote.

Nohshad Shah, head of EMEA fixed income sales at Citadel Securities shared a similar take to Druckenmiller's, describing Bessent's plan as "financial repression," and noting that it doesn't include fixing the underlying conditions that have caused rates to rise.

"Households may ultimately pay for policymakers' unwillingness to fix the roof whilst the sun is shining," he wrote, adding that the more "durable" solution to lowering interest rates may lie in making "harder choices on fiscal policy," which could include raising interest rates for the short-term.