US Treasury doubles long-term bond buys, angering Wall Street investors
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US Treasury Secretary Scott Bessent's decision last week to at least double purchases of long-term government bonds drew sharp criticism from Wall Street investors and economists. The move aims to support the $32 trillion bond market after long-term borrowing costs hit a 19-year high. Critics say it could undermine Treasury credibility and work against the Fed's ability to rein in inflation, which has risen again this year.
Key Facts
- US Treasury Secretary Scott Bessent decided last week to at least double purchases of long-term US government bonds.
- Long-term borrowing costs reached their highest level in 19 years, prompting the Treasury to support the $32 trillion bond market.
- PGIM Credit Co-Chief Investment Officer Greg Peters called the Treasury's strategy a "self-limiting and doomed approach."
- Hedge fund billionaire Stanley Druckenmiller described the plan to raise long-term bond buybacks to at least $4 billion as a "mistake."
- Inflation in the US reached 3.7%, and three FOMC members supported a rate hike at the July meeting.
Market Intervention Criticism
Investors argue the Treasury's move could undermine its credibility and work against the Fed's ability to control inflation, which has risen again this year. Market participants claim the Treasury's intervention contradicts the Fed's policies aimed at bringing inflation to the 2% target. The Treasury's action increased expectations on Fed Chair Kevin Warsh, who is scheduled to speak at the Kansas City Fed's economic conference in Jackson Hole, Wyoming. According to the Financial Times, PGIM Credit Co-Chief Investment Officer Greg Peters negatively assessed the Treasury's rationale and market interventions, calling the strategy "self-limiting and doomed." Morgan Stanley Wealth Management Chief Investment Officer Lisa Shalett said intervening in the bond market due to discomfort with rising yields is unpredictable and could be seen as an admission that Washington is concerned about debt sustainability.
Fed and Treasury Divergence
Bessent's intervention occurred as the Trump administration's war in Iran increased consumer and business costs. With inflation at 3.7%, three members supported a rate hike at the July FOMC meeting, and some regional Fed presidents indicated they could support a 25-basis-point increase. The Treasury's goal of lowering borrowing costs aims to keep the economy buoyant, while Fed officials discuss rate hikes to cool inflation, showing a strategic divergence between the two institutions. Hedge fund billionaire Stanley Druckenmiller, in an op-ed for the Wall Street Journal, called the Treasury's plan to raise long-term bond buybacks to at least $4 billion a "mistake," arguing it is price management rather than liquidity management. Evercore ISI Vice Chairman Krishna Guha noted that Warsh's core view against interfering with market signals conflicts with the Treasury's steps, despite Bessent's statements that market prices do not reflect fundamentals.
Political Pressure and Elections
Ahead of the November midterm elections, the Trump administration's demand for low borrowing costs raises concerns that if the Treasury's effort to control yields proves insufficient, pressure may mount on the Fed to intervene.
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US Treasury doubles long-term bond buys, angering Wall Street investors
