Bessenet's intervention in the bond market has faced stern warnings from its "mentor" Druckenmiller: artificially suppressing yields is a "deferred subsidy," which will be unsustainable in the long run.

Recent interventions in the bond market by U.S. Treasury Secretary Scott Bessent have slightly pushed down long-term yields, but they have also prompted an increasing chorus of skepticismcritics argue that these measures are difficult to sustain in the long term and could lead to dangerous consequences. Wall Street is generally skeptical about whether the Treasury has enough firepower to manage the fixed income market. Throughout 2025, the issuance of new U.S. debt has reached approximately $4.8 trillion, and this figure is expected to rise further this year. Bessent has proposed at least doubling the Treasury's repurchase efforts for long-dated outstanding government bonds. Furthermore, in late July, the Treasury intervened in the foreign exchange market to support the yen, thereby averting the need for the Bank of Japan to sell U.S. bondsan action that could likely increase U.S. Treasury yields. These efforts have lowered long-term yields from their recent peak, the highest level since before the 2008 global financial crisis. However, market experts believe these actions are destined to fail, especially given that the U.S. has yet to tackle its fiscal challengescurrently, the total federal debt has just surpassed $40 trillion, while the budget deficit for fiscal year 2026 is steadily approaching the $2 trillion mark. The latest critic to join the ranks is Stanley Druckenmiller, the head of the well-known family office Duquesne Family Office, who is also symbolically significant as Bessents mentor in the investment realm. In the early 1990s, the two collaborated with George Soros in the classic campaign to short the pound. Druckenmiller warned that without fiscal discipline, the practice of forcefully suppressing yields would be harmful to the market and undermine the credibility of the Treasury. In a commentary piece, he wrote: If the yield on the 30-year Treasury bond must reach 5.5% to clear the market, that isnt a crisis, its a bill. The only way to keep long-term yields persistently low is to address the fundamental deficit issue. Delaying Subsidies In the article titled "Let the Bond Market Speak," Druckenmiller urged Bessent to abandon the repurchase plan announced on August 19 and allow the market to independently price government bonds. He stated: Every basis point artificially suppressing yields is a subsidy for delaying action. Once the market believes the Treasury is defending a certain price, every uptick in yields will test the official resolve, and interventions will need to escalate in order to pass these tests. He further pointed out: Governments have never won the battle against fundamental price defenses; the only variable is how much cost they incur before admitting defeat. The Treasury did not immediately respond to requests for comment on Druckenmillers commentary. Bessents initial plan was to at least double the Treasury's regular $2 billion repurchase program of non-latest securities (i.e., previously issued securities), which was initiated two years ago by his predecessor, Janet Yellen. Additionally, sources within the Treasury have disclosed that the department might also utilize its $935 billion General Account (TGA) to fund fixed-income purchases. However, there are still doubts in the market about whether this path will be sufficient. The General Account is essentially the Treasurys checkbook for funding government operations and has been tapped multiple times during Congressional debt ceiling standoffs, limiting its available bandwidth. Recent actions have been compared to the past liquidity-providing tools and rate-suppressing measures employed by the Federal Reserve for the bond market. One such measure is Operation Twist, which involves selling short-term debt and buying long-term debt; another is quantitative easing (QE), where the Fed directly purchases fixed-income assets using its own resources. The difference is that, unlike the Treasury, the Federal Reserve is not constrained by limited cash balances and can create reserves to finance its purchases. The Fed's Position Ryan Swift, Chief Strategist at BCA, noted in a client report: If the U.S. government genuinely aims to suppress yields, the Fed must be involved. Unless the Fed deploys its balance sheet, any effort by the U.S. government to suppress Treasury yields is likely to fail. In fact, if investors start to sense that the government is becoming anxious, these measures could even backfire. However, Swift believes that Fed Chairman Kevin Warsh may be reluctant to intervene. During his brief tenure at the Fed, Warsh has repeatedly emphasized the importance of allowing markets to discover prices on their own. After the July Fed meeting, Warsh stated: Market participants are learning to deal with the 'ball' rather than getting entangled with the 'referee'market prices will continue to react in the direction and magnitude they deem appropriate. Similar to some other viewpoints, Swift believes that the recent rise in yields is not particularly alarming. He pointed out that, based on the Fed's benchmark interest rate and market expectations of the central bank, along with factors such as inflation, unemployment rates, and market volatility, the 30-year long bond yield is close to its fundamental fair value. Currently, the 30-year Treasury yield is only slightly above its 50-year average (around 5.16%); as of Tuesday morning, the benchmark 10-year Treasury yield is exactly in line with its historical average of 4.64% since the early 1960s. Nohshad Shah, Head of Fixed Income Sales for Citadel Securities in Europe, the Middle East, and Africa, wrote: The signals from the bond market are straightforward: fiscal or monetary policies should be further tightened. Preventing Treasury bonds from clearing at lower prices does not eliminate this pressure it merely transfers the pressure elsewhere. The Fed will have a voice at its policymaking meeting on September 15-16. According to calculations from the Chicago Mercantile Exchange Group (CME Group), the market is currently pricing in a 40% probability of a rate hike in September. Warsh is scheduled to speak at the Fed's annual conference in Jackson Hole, Wyoming, on Friday, where he may address Treasury-related issues. Krishna Guha, Head of Economics and Central Bank Policy at Evercore ISI, stated that Warsh might try to avoid intervening. He wrote: Its not easy for Warsh to soothe the market while not contradicting Bessent's unconventional operations; he may choose to remain silent.