Bessent said ‘I am the house.’ The bond market disagreed

Bond investors took Treasury Secretary Scott Bessent up on his dare. On Sept. 8, Bessent told an audience at Southern Methodist University, “I am the house now,” warning anyone betting against the Treasury’s defense of the long end of the market. Over the next three weeks, the 30-year Treasury yield rose from about 5.25% to as high as 5.69%, touching levels not seen since 2002. 

There are, of course, many reasons for the selloff, including oil prices, inflation worries, Fed policy expectations and heavy corporate debt issuance. But the one cause Congress controls is fiscal credibility. When deficits and the debt-to-GDP ratio reach unsustainable highs, bond buyers conclude that the government’s current policies are not credible and must change. Either taxes, inflation, or both, must increase. Faced with these prospects and the uncertainty that surrounds them, both domestic and foreign bond buyers demand a higher yield to hold so-called........

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