‘drop In The Bucket’: Why Wall Street Will Shrug Off Bessent’s Bond Market Plans

Treasury Secretary Scott Bessent on Wednesday announced that the federal government will buy back more of its own bonds, a move that briefly reversed a weekslong selloff in long-term U.S. debt that had threatened to drive up mortgage rates and consumer borrowing costs in the lead-up to the midterm elections.

Few expect Bessent’s cure to fix what’s ailing the bond market.

“It’s a drop in the bucket relative to the other pressures on yields,” Lori Heinel, the global chief investment officer at State Street Investment Management, told POLITICO on Wednesday.

President Donald Trump promised to unlock growth, rein in consumer prices and fix rising budget deficits. But in recent weeks, a combination of inflation fears, a hazy endgame for the Iran war and a glut of private and government debt sent long-term yields to levels that haven’t been seen since the financial crisis. Over time, that can drive up the cost of widely used consumer loans and slow the economy’s expansion.

Markets reacted favorably to Treasury’s announcement that it would “at least double” the size of its buybacks, in which the department reabsorbs older debt securities with a maturity of at least 10 years. But by midday Wednesday — hours after Bessent’s buyback plan sparked a bond market rally that sent yields tumbling — rates on 10-year government bonds were inching higher.

The forces driving up long-term borrowing costs can't be quickly reversed, said Jessica Riedl, a budget and tax fellow at the Brookings Institution who previously served as a top economic adviser to former Sen. Rob Portman (R-Ohio).

“Ten and 30 year yields are achieving levels that haven’t been seen in decades,” she added. “I think that motivates Treasury — particularly before an election — to try to tamp down the markets and the news cycle before this becomes a more potent political issue.”

Trump on Wednesday said that the public had no reason to be worried about bond market volatility.

"Our country is doing so well despite interest rates," he said following a meeting with technology industry leaders at the White House. "We're powering through these ridiculous rates."

Treasury spokespeople did not respond to requests for comment. The White House referred a request for comment to Treasury.

Trump has spoken about how bond yields react to his agenda, and famously hit pause on his “Liberation Day” tariffs after the market got “yippy.” Bessent — a former hedge fund executive with strong relationships across Wall Street — is often tasked with soothing markets during periods of volatility or stress.

Rising borrowing costs will pose a threat to Republicans in midterm campaigns that have been defined by voter anxiety around affordability issues. Just 29 percent of voters approve of Trump’s handling of the economy, according to a recent Reuters/Ipsos poll.

Wednesday’s buyback plan represents the latest attempt by Bessent to affect Treasury yields. Earlier this month, the department conducted a joint intervention with Japan to boost the yen, which had been trading in July at its weakest level against the dollar in roughly four decades. Bessent warned in January that turmoil in Japanese government bonds was spilling into the Treasury market.

Treasury also recently signaled the possibility that it could decide to issue less longer-term debt in coming quarters.

“Our massively irresponsible fiscal policy is the root cause of the sustained rise in longer term yields,” said Mark Sobel, a longtime Treasury official who’s now the chief economist and vice chair of the Official Monetary and Financial Institutions Forum. “If the Trump administration wishes to take the pressure off long term yields, it needs to reduce our reckless fiscal deficits. Increasing buybacks is akin to spitting into a gale force wind.”

Bessent’s buyback plan lifts the previous ceiling from $2 billion per operation to at least $4 billion, effective Sept. 9 and through Nov. 4. And the increase “reflects Treasury’s desire to provide greater liquidity support in longer-dated nominal sectors where there is consistent strong sponsorship from market participants,” according to a statement.

Lou Crandall, chief economist at independent research firm Wrightson ICAP, said Treasury also had some good technical reasons for making this decision, beyond just the recent runup in yields.

“These buybacks are called ‘liquidity support’ operations in Treasury parlance, and the Treasury looks at them more as a market-efficiency tool than as a vehicle for influencing the yield curve,” Crandall said, noting that there’s been unusually strong enthusiasm from investors for Treasury buybacks in longer-term U.S. debt.

But while Bessent’s strategy may reduce borrowing costs in the near term, it also exposes Treasury to risks to future shocks, said Adam Josephson of Sakonnet Research.

“They’re trying everything possible to limit upward pressure on long-term yields,” he said. “Nothing has worked. And why would this work? It’s too small to matter.”