Bessent’s $4 billion bond plan is like ‘rearranging deckchairs on the Titanic given the U.S. national debt of $40 trillion,’ ING says

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Bessent’s $4 billion bond buyback plan is like ‘rearranging deckchairs on the Titanic given the U.S. national debt of $40 trillion,’ ING says

U.S. Treasury Secretary Scott Bessent made a surprise intervention into the bond market yesterday, promising to “at least double” its buybacks of long-dated bonds, such as the 10-, 20-, and 30-year Treasuries. “The current maximum size of $2 billion per operation will be at least $4 billion per operation.” The buying will start on September 9. A total of up to $128 billion could be spent over the course of a year, The Wall Street Journal estimated.

The intent of the operation is to raise the price of the bonds and thus lower the interest yield on them. Long-dated bonds are used to set interest rates on a wide range of credit products, such as mortgages, car loans and commercial loans. If rates fall, that credit should become cheaper to obtain.

The intervention worked: The yield on the 30-year Treasury fell from over 5.3% to 5.19%, before ticking up a little to 5.218% this morning. (That’s a big single-day decline in bondland.)

Wall Street reacted with … skepticism.

“While increasing liquidity buy-back operations by $2 billion might seem like rearranging deckchairs on the Titanic given the U.S. national debt of $40 trillion, yesterday's intervention by the U.S. Treasury has been warmly greeted by investors around the world,” ING’s Chris Turner told clients this morning.

Guneet Dhingra and his team at BNP Paribas said: “Despite a series of efforts to thwart bond vigilantes, we believe these measures will struggle to offset either declining Fed credibility or rising rate expectations. … bond vigilantes continue to have the upper hand. The boost to buybacks is also happening in a world of challenged Fed credibility. We do not believe buybacks will be enough to offset a continued loss in Fed credibility.”

“Admittedly, the increase in buybacks isn’t a particularly big amount relative to the number of outstanding Treasuries. But it offers a signal that officials are willing to support the long end,” Deutsche Bank’s Henry Allen et al said in an email.

Ed Yardeni, who invented the phrase “bond vigilantes,” said “Bessent is signaling that he will do whatever it takes to keep a lid on bond yields. His message to the Bond Vigilantes: ‘You folks aren't the only players in the bond market.’”

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Traders in America and Asia appeared to welcome Bessent’s promised injection of new money into the bond markets. The S&P 500 rose yesterday, and futures were in a holding pattern this morning before the opening bell. The index remains near its all-time high in part because retail traders net bought........

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