Economists Peter Schiff and Mohamed El-Erian say the Treasury Department’s move to double its bond buybacks may already be unraveling, as the 30-year yield reverses higher just a day after falling on the announcement.
The Intervention Made Things Worse
“Now that the Trump Administration has panicked by announcing a Treasury bailout, investors who hadn’t yet realized there was a problem will get the message and start selling,” Schiff said on X.
He added that if Treasury Secretary Scott Bessent believed the bond market already had a problem, “sounding the alarm made the problem much worse.”
The Treasury Department announced Wednesday it would at least double its liquidity-support buybacks for long-dated bonds, from $2 billion to $4 billion per operation, sending the 30-year yield down to around 5.19% before it climbed back to as high as 5.27% by Thursday.
El-Erian said the reversal in 30-year yields wasn’t surprising in itself, given how short-term the effects of announcements like the Treasury’s tend to be.
What caught his attention, he added, was “the speed and magnitude of the retracement.”
‘The Bessent Put’
Macro investor Raoul Pal called the move “The Bessent Put,” saying “the extra dollars are small, the signal is enormous,” as the fiscal authority, rather than the Federal Reserve, stepped in to defend the long end within 24 hours of the yield highs.
He said the next leg of the strategy would likely fall to Fed Chair Kevin Warsh, who he expects to “deliver his part of the grand bargain between the Fed and the Treasury.”
Pal added that the broader goal is funding both government debt and hyperscaler capital spending simultaneously, calling it “the most important game of all time.”
24 Hours of Drama
Economist Justin Wolfers said Bessent’s intervention “succeeded in pushing interest rates down,” but added, “no one really knows what he’s doing, or why.”
“The end result: 24 hours of drama, and bond yields are basically unchanged,” Wolfers wrote in his blog, adding that the real story is the longer-term climb in borrowing costs, due to AI-related borrowing, rising geopolitical risk, and government deficits now at their highest level since World War II outside of the pandemic and 2008 financial crisis.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
Image via Jason Raff/Shutterstock
Recent Comments