Bonds sharply sold off and stocks tumbled Wednesday after Treasury Secretary Scott Bessent’s latest effort to tamp down what he called market “fever” backfired.
At 11 a.m. ET, the Treasury Department announced that it would repurchase $6 billion worth of 10- to 20-year government bonds, in the hope that fewer bonds on the market would drive up demand, pushing down rates, or yields, that have soared to levels not seen in decades.
But that’s not what happened. Instead, most Treasury yields sharply jumped on the announcement. The 10-year bond yield surged to as high as 4.85%, its highest since November 2023. The 20- and 30-year bond yields surged to as high as 5.3%. When Treasuries fall, their yields rise.
By 4 p.m. ET, bond yields had pulled back slightly from the highest levels of the day but remained sharply elevated.
The Nasdaq Composite, which is sensitive to interest rates given how many major tech companies it tracks, ended the day down 0.6%. The S&P 500 tumbled 0.5%.
The reaction from Wall Street underscores the limits of the power Bessent claims to exert over markets. The Trump administration is running out of tools to gain leverage over major parts of the U.S. economy, from gas prices and bond yields to retaliatory tariffs.
Yields have been rising steadily since the start of the year. But they began to surge in late July, when President Donald Trump’s newly installed Federal Reserve chairman, Kevin Warsh, didn’t sound fully committed to using the Fed’s tools to help curb inflation at a news conference.
That spooked bond markets, which saw inflation climbing as the Iran war dragged on and Trump’s trade policies raised the prices of many imported goods.
“There was, like, this fever that was building” in the bond markets, Bessent said Tuesday, appearing to suggest that yields had risen largely because of the “financial press.”
“They get a hold of a narrative, and I wanted things to become more fact-based,” he told Breitbart.
“My job is to try to push things back towards equilibrium.”
But it is that outlook from Bessent, that the government should take actions to keep yields down, that investors see as a potential trap for the Treasury Department.
“Once markets believe Treasury is defending a price, every rise in yields becomes a test of official resolve, and the operations must grow to survive the tests,” legendary investor Stanley Druckenmiller wrote in a widely read Wall Street Journal op-ed last month.
Peter Boockvar, chief investment officer at One Point BFG Wealth, referred to the op-ed Wednesday, writing, “You can be sure the market will continue to ‘test’ the ‘official resolve’ if they feel the fundamentals warrant.”
Many investors and economists believe the fundamentals do warrant it.
Just weeks ago, the U.S. national debt surpassed $40 trillion, a level never seen before. The path to that massive number had been visible for years, but it nonetheless drew attention to America’s reliance on the rest of the world to buy its debt.
“Sovereign debt around the world has exploded and we’re all competing for the same pool” of investors, Diane Swonk, chief economist at KPMG, wrote recently.
“You’ve got a lot of debt without as many buyers,” she told NBC News last month.
Bessent seemed to acknowledge that worry last month, when he told CNBC he was working with the White House on a “fiscal consolidation package that we’ll be talking about more in the coming weeks or months.”
The Treasury Department and the Office of Management and Budget have not yet shared any details of that plan.
Bessent did not appear particularly concerned about America’s ballooning debt this week, however.
“The U.S. bond market has been the best-performing bond market in the world since President Trump came in,” he said at an event at Southern Methodist University.
“If people were worried about the U.S. bond market or the U.S. defaulting, then they would be selling U.S. bonds and buying German bonds or Japanese bonds. But the U.S. bonds were performing better.”
Wednesday’s Treasury buyback announcement was only the latest in a series of active interventions Bessent has taken in the markets recently.
In early August, Treasury helped prop up the Japanese yen.
Bessent’s unusual role in helping the Japanese government support the yen was prompted by worries that Japan — one of the largest holders of U.S. Treasury bonds — might choose to sell some of its holdings to raise cash to support its currency.
Sales of large volumes of Treasury bonds typically push yields higher. By assisting Japan in stabilizing its currency, the White House was effectively guarding against a potentially large sale of T-bills.
Bessent warned currency traders this week not to test his resolve.
“I am the house now,” Bessent said at SMU. “So when we intervene with the Japanese yen, I have pretty good insight into what the Japanese, what the Bank of Japan, is going to do, what Japanese policymakers are going to do.”
“You can bet against me if you want,” he said.
