One week / one topic: Scot(t) free?

What happened?

The United States’ top bond salesman is back.

On Wednesday, Scott Bessent announced that the US Treasury would increase — "by at least double" — its liquidity-support buybacks in the 10- to 30-year government bonds sector, running from early September into November.

The market took the hint, and 30y yields fell as much as 10bps to around 5.18% — backing off their highest since 2007 — while the dollar slid to a three-month low.

Mechanically, this isn't QE — the Treasury still has to fund whatever it buys back, most likely with bills.

But yes, this does sound a lot like Operation Twist all over again, let’s just not call it that ok?

To be clear, those two words – at least – are doing a lot of the work: this is clearly messaged less as a hard ceiling than an open invitation to do more if the long end misbehaves.

Maybe Bessent was going for You come at the king, you best not miss vibes… but yields have kind of already bounced back to where they were.

Since taking office, Bessent explicitly said that the 10y yield is his scorecard as "the nation's top bond salesman".

As a former hedge-fund manager, he's used to fast price action — and this isn't his first swing: recent weeks brought the first US–Japan coordinated yen purchases since 1998 and a refunding tweak that quietly opened the door to trimming long-dated issuance.

However, at this stage, the buyback announcement is just in character with such an interventionist approach. Is it really a surprise that its effect was so short-lived?

Importantly – and, perhaps, intentionally – this is all landing into a market that is already struggling to make sense of the new Warsh-led Fed.

The new Fed chairman’s decision to strip out forward guidance produced a monumental curve steepening, which was also the complete reversal of what they had achieved just a few weeks earlier. (below)

So, the US Treasury is now trying to talk the long-end lower while the Fed is deliberately saying less…?

No wonder that the curve can't figure out what’s going on.

Strip away the bond-geekery about the mechanics, however, and the big concern is: does this even make a difference?

The extra buybacks on their own are a marginal number that can't turn the tide of long-end selling, even if the immediate signal is loud enough to force some short-covering and buy time.

This looks tactical then, not fundamental: the supply hasn't gone anywhere, the deficit path is still ugly and the economy does not seem to be slowing down anywhere near enough what it would take to bring down long rates.

For investors, the uncomfortable subtext of soft financial repression is also unlikely to improve sentiment towards US Treasuries… And, unsurprisingly, gold jumped on the announcement.

So, what are we doing about it?

Our observations

• Fundamentals: Fair value for long-dated government bonds remains near-unknowable, their hedging properties are structurally challenged by the current inflation-prone regime, and policymaking uncertainty keeps increasing – especially in the US.

  Sure, we never know what we don’t know and we want to strike the right balance between conviction and diversification. But policymakers are really not helping make the case for these assets…

• Price action: The reversal in yields has been remarkable... Almost as if several investors were just waiting for an opportunity to sell some government bonds?

  Asking for a friend, of course…

• Investor beliefs: It seems extremely unlikely that the recent announcements would be enough to convert any bond bears into long-duration zealots.

  If anything, beliefs might further deteriorate on the back of this.

So what?

Maybe the important information here wasn't so much the details of the announcement itself, but learning that the Treasury's reaction function now explicitly includes buybacks, issuance mix and other liability tools whenever the long-end comes under pressure.

The US Treasury has now blinked, and these very announcements – among other things – show how much they care (and they should!) about where yields are.

However, yields can keep traveling higher due to much more substantial reasons like issuance, fiscal policy and debt levels.

The quick reversal to higher yields says a lot about the effectiveness of these actions, and the lasting implications might well be a flatter US curve and weaker dollar – while also marginally cementing a bullish case for equities and gold.

As for us, we took advantage of the sharp move to trim our positions in 30-year government bonds (mostly US) and bring exposure back in line with conviction levels.

One day at a time, then.

Mood music: Pearl Jam – Last Exit

By popular demand, here is the One week / One topic playlist

The information provided should not be considered a recommendation to purchase or sell any particular security.