The Trump administration’s Treasury Department has become increasingly interventionist in its efforts to bend the forces of global markets to lower the cost of living in the United States, but it is finding that success does not come easily.
The assertiveness comes as the U.S. gross national debt topped $40 trillion on Wednesday, a milestone driven largely by growing interest payments to investors who hold government debt. High interest rates and elevated prices have combined to sour the views of voters on President Trump’s handling of the economy.
This week, Treasury Secretary Scott Bessent made a surprising move to calm the jittery bond market. He announced that the Treasury Department would be doubling the amount of government debt it is permitted to buy back from investors. The increase was intended to limit the rise of long-term government bond yields as a way to contain borrowing costs.
“Part of this is signaling and to show that we believe that yields don’t reflect the underlying fundamentals,” Mr. Bessent said in an interview with CNBC on Thursday.
Explaining that he is willing to expand the buyback program, Mr. Bessent argued that investors are misreading the market.
“We are trying to keep the market in equilibrium,” Mr. Bessent added.
Those yields — which represent what investors are demanding to be paid in order to buy bonds — spiked to their highest levels since 2007. The yields, which move inversely to bond prices, dipped after Mr. Bessent’s announcement on Wednesday. By Thursday, yields were again rising, underscoring the challenge of such interventions given the fundamental issues that are making bond investors jittery.
Mr. Bessent has been trying other approaches to push down borrowing costs. The Treasury Department has been issuing more short-term bills that mature in less than a year to help keep interest rates lower. The strategy is similar to one that was used by Mr. Bessent’s predecessor, Janet L. Yellen. In 2024, Mr. Bessent criticized Ms. Yellen for deploying that approach, saying she was using the Treasury Department to loosen financial conditions in the economy before the presidential election.
This is not Mr. Bessent’s first intervention. This month, he made a rare intervention in currency markets to prop up the weakening yen. The purchases of the Japanese currency were intended to help Japan avoid selling its holdings of U.S. Treasuries to boost the yen’s value. Such a move would have further flooded the market with Treasuries, which would have pushed up yields as supply overwhelmed demand.
“I think it’s both economic and political,” said Nellie Liang, who served as under secretary for domestic finance at the Treasury Department in the Biden administration. “They think these higher rates are a problem.”
Ms. Liang noted that the Biden administration introduced the bond buyback program and said that she was surprised that Mr. Bessent made the announcement without a formal process. Treasury, which has long maintained a strategy of making “regular and predictable” announcements for these kinds of policy changes, held its quarterly refunding, where it usually announces debt issuance plans, in early August but made no mention of larger bond buybacks.
In the wake of Wednesday’s move, investors have been left wondering what comes next as yields continue to push higher. Part of Mr. Bessent’s problem, according to Sophia Drossos, an economist at Point72, a hedge fund, is that “not all of the drivers of the rise in long-end yields are under direct control of the Treasury.”
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Treasury yields have risen because of a combination of factors. The U.S. fiscal situation appears to be getting only worse, not better. Inflation concerns continue to linger amid the continuing war with Iran and skepticism about whether Kevin M. Warsh, the chairman of the Federal Reserve, will follow through with interest rate increases if inflation does not continue easing. An influx of new debt issued by technology companies to fund the artificial intelligence build-out has also entered the bond market.
The Treasury Department, in announcing Wednesday’s move, kept open the possibility that the Treasury would upsize its interventions as necessary, suggesting that buybacks could become a more active tool if markets become disorderly.
At a certain point, large-enough buybacks could have lasting impact by fundamentally changing the amount of supply available for buyers.
Thomas Simons, chief U.S. economist at Jefferies, estimates that buybacks in the vicinity of $6 billion to $8 billion would have that effect but would represent a significant escalation in the Treasury’s involvement.
“At that point, the market would actually start to look at the fact that duration would actually be somewhat more scarce over time,” he said, referring to longer-dated bonds.
The uncertainty factor linked with holding longer-term securities over shorter-term ones, known as the “term premium,” would likely fall, Mr. Simons said, translating to lower inflation-adjusted yields on a sustained basis.
How the Fed sets policy from here will also play a part in determining whether there is another leg higher in the longer-term yields that necessitates further interventions from the Treasury.
Officials at the Fed are actively debating whether they need to raise interest rates at their next meeting, in mid-September. The decision hinges in large part on the trajectory of inflation after two relatively benign reports that showed price pressures modestly improving since June. Another month of moderate data would help to ease some of the urgency around raising rates, but it would not entirely eliminate the possibility of doing so later this year.
Many officials have already backed a rate increase, having grown impatient by the fact that inflation has overshot the Fed’s 2 percent target for roughly half a decade. Any indication that progress toward that goal is once again stalling is likely to compel others to join this cohort.
Mr. Warsh is also likely to pursue policies that reduce the Fed’s $6.8 trillion portfolio of government bonds and mortgage-backed securities, having called for a “leaner, meaner balance sheet” at a congressional hearing last month.
A smaller balance sheet, depending on how it is pursued, could put the Fed “at cross-purposes” with the Treasury, said Blake Gwinn, head of U.S. rates strategy at RBC Capital Markets. “You’ve got Bessent who obviously would prefer not to have long-end yields going up, and then you’ve got Warsh now suggesting that he’s going to tighten policy by pushing long-end yields up through balance sheet action.”
Mr. Warsh has called for more coordination between the Treasury and the Fed, however, suggesting that the central bank chairman will not proceed unilaterally. One potential opportunity could arise if the Fed shifts the composition of its balance sheet, such that it is holding more short-term securities rather than longer-term ones over time. That would correspond with Mr. Bessent’s penchant for issuing Treasury bills, which mature in one year or less. In the wake of Mr. Bessent’s buyback announcement, investors are already preparing for the possibility that he cuts back on the amount of longer term debt to be issued going forward.
The Treasury Department said it expanded its buyback operation out of a desire to “provide greater liquidity support in longer-dated nominal sectors where there is consistent strong sponsorship from market participants.”
Upon taking office last year, Mr. Bessent acknowledged that elevated yields — particularly for the 10-year bond — were among his biggest concerns.
He said in an interview with Tucker Carlson that he viewed himself as “the United States’ leading bond salesman,” noting how the rate on that bond tracks closely with mortgage rates. “We’ve got a tremendous amount of debt to roll.”
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