Bessent moves to curb Treasury yields, putting pressure on Warsh’s Fed

Treasury Secretary Scott Bessent is in the midst of a historic effort to tamp down long-term Treasury yields. He may also be complicating the work of his counterpart at the Federal Reserve, Chairman Kevin Warsh.

The Treasury Department on Wednesday said it would increase its buybacks of long-term Treasury debt, raising the maximum it will buy from $2 billion to at least $4 billion. The intervention had the effect of stemming a sell-off in the Treasury market that has pushed up yields to uncomfortable levels in recent days. The selloff had dominated global headlines as investors worried that rising Treasury yields would worsen an affordability crisis for consumers, complicate businesses’ borrowing plans, threaten stock-market gains and make it more expensive for the government to finance its burgeoning debt. 

While the buybacks aren’t large compared to the total amount of debt outstanding, many in the markets interpreted the Treasury’s new repurchase plan as a potent symbol of a long-standing effort by Bessent to bring down the yield on the 10-year Treasury and other maturities.

But doing so risks accelerating inflation while making the cost of financing the $32.2 trillion in debt held by the public more sensitive to potential interest-rate increases, bond traders and economists said. And it puts pressure on the independent Fed to back administration policies.

“We’re slowly moving to the point where the logic of populism is going to insist that the central bank support fiscal objectives,” said Joseph Brusuelas, principal and chief economist at RSM US. 

President Donald Trump has demanded the Fed cut interest rates to lower the burden of financing the federal debt, while simultaneously adding to the debt. The federal budget deficit is on track to hit $2.1 trillion this year, according to the Congressional Budget Office. 

“That will cause market distortions. And the sort of intervention that we saw this morning that will make life more difficult for Kevin Warsh,” Brusuelas said. 

Markets have long asked the Treasury to increase its buybacks. Newly issued debt tends to trade with healthy liquidity, but buyers can later become scarce for maturities that are less than the term originally issued. For instance, a 30-year Treasury bond issued in May 2020 — with 24 years left to maturity — traded on Wednesday at roughly 45 cents on the dollar….