No Easy Fix: Bessent's Treasury Twist Fails to Tame Rising Bond Yields

US Treasury Secretary Scott Bessent's plan to reshape the bond market is hitting a wall. His so-called Treasury twist, announced Thursday, briefly pushed long-term yields down, but they climbed straight back up, closing the week at 4.73% on the 10-year benchmark, near the highest since he took office.

Bessent's Twist and the Market's Response

Bessent said the Treasury would buy back a swath of long-term US debt and sell more short-dated securities. He called it "what I would call a Treasury twist," a nod to the Federal Reserve's 1960s plan to rejigger yields. He argued yields are out of whack with "equilibrium" levels.

The move worked for a day. Long bond yields dropped sharply on Wednesday after the plan was announced, then reversed. Bessent's drive to get borrowing costs down, especially with November's midterm election looming, is running into forces beyond his control.

US debt surpassed $40 trillion this week on one gauge. Developed nations are also carrying record debt levels. Corporate issuance is surging, led by the artificial intelligence boom. Inflation jumped after President Donald Trump upended energy markets by starting a war with Iran. Confusion over Fed Chairman Kevin Warsh's strategy is adding to investor concerns.

"Every route to lasting relief for the long end runs through something the administration doesn't want," said Matt King, founder of Satori Insights. He said a smaller US budget deficit, a slide in the stock market, or a decline in AI investment could bring longer-term yields down.

Normal Rates or Out of Whack?

Some market participants disagree that yields are distorted. "I think we are back to normal interest rates, 4% to 5% is normal," Edward Yardeni, who coined the term "bond vigilantes," told Bloomberg TV about an hour before Bessent's shock move.

The Treasury said its intervention was to support liquidity. But JPMorgan Chase & Co.'s rates strategy desk reported Thursday that "market functioning has improved notably this year."

Beyond Treasuries: AI and the "Bessent Put"

Bessent's vision extends to so-called hyperscalers, companies pouring money into AI and borrowing to do it. Earlier this month, Alphabet Inc. sold bonds ranging up to 40 years. The investment will pay off eventually in faster and non-inflationary economic growth, but "it is causing a short-term competition for capital," Bessent said. He added: "If I were sitting in the chief financial officer's seat, I would think about issuing more what's called the belly debt," or five-year maturities.

The apparent attempts to shape yields have prompted debate over a "Bessent put," an echo of the old belief that former Fed Chair Alan Greenspan would always bail out the stock market. Chris Turner, global head of markets at ING Groep NV, used the term this week, though many doubt Bessent has the firepower to pull off anything similar for bond yields.

The Treasury did not respond to a request for comment. Bessent blamed investors for acting on "bad information," saying he has "asymmetric" access to the real picture. "There's been a lot of misinformation in terms of what's going on with the deficit," he said, vowing to refocus attention on Trump's fiscal-consolidation program.

Deficit Realities and What Bessent Can Do

In coming days, Bessent and White House budget chief Russ Vought "will be examining both on the revenue side and the cost side what we can do." He suggested a crackdown on fraud and reductions in transfers to states. The Elon Musk-led Department of Government Efficiency attempted something similar last year but fell short of its own estimates.

"We are skeptical the administration can realistically do anything at this point on the deficit that would be material," Sarah Bianchi, chief strategist at Evercore ISI, wrote in a note. The Treasury's interest bill is running well in excess of $1 trillion a year. Social Security, Medicare and Medicaid spending are the main drivers of a fiscal deficit forecast at around 6% of GDP this year.

Overhauling those entitlement programs is "a non-starter in the near term," and even more so after November if Democrats win at least one chamber of Congress, Bianchi wrote.

What lies within Bessent's authority is revamping debt sales and buybacks. This week's move came two weeks after a tweak in the Treasury's broader forward guidance on issuance. Analysts said that opened the door to potential cuts in sales of the longest-dated securities, the ones with the highest yields.

Such steps look a lot like the debt-issuance tactics of Janet Yellen, which Bessent used to criticize. They also point to an implicit split with Warsh, who has come close to endorsing the rise in yields. "Markets have done quite a bit," Warsh said on July 29. "Market prices will continue to respond in the direction and magnitude they see fit."

Investors will watch Warsh's speech Friday at the Kansas City Fed's annual Jackson Hole symposium for signals on the Fed's next move.

For Nigerian businesses and the naira, the standoff in US bond markets matters. Higher US yields strengthen the dollar, putting pressure on emerging-market currencies and raising the cost of imported goods. If Bessent cannot bring yields down, the naira could face fresh headwinds as global capital chases safer US assets.