Treasury Secretary Scott Bessent stated on Thursday that he has a "big toolkit" to assist with pressures in the government bond market.
While he did not specify them, Bessent has several options, including reducing the duration of the government's holdings, ramping up the bond buyback program, and changing the duration composition of the Treasury portfolio.
Bond yields moved higher on Thursday despite the Treasury chief's assurances.
Bessent insisted that he has multiple tools at his disposal to quell liquidity problems in the government debt market and restore calm.
While that is true, a two-pronged effort he has deployed so far — accelerated buybacks and an effort to talk the market into accepting the rationale — has met with little success.
The Treasury's announcement on Wednesday that it would at least double its bond buybacks starting in early September sent yields tumbling as investors applauded a backstop for longer-maturity government bonds.
However, yields at the long end quickly rose again on Thursday as market experts showed skepticism at whether the push would succeed against a bevy of factors working against Treasurys.
That leaves Bessent with a variety of options that he may yet choose to deploy:
- Bigger and more frequent buybacks: Bessent could simply say the initial round of stepped-up buybacks went so well that Treasury is going larger.
- Smaller auctions: The department could simply cut down on the level of longer-dated debt it is issuing and shift it into shorter-term bills.
- Changing the maturity composition of outstanding debt: This essentially would be a larger-scale version of smaller auctions and would require market participants to snap up shorter-duration — and lower-yielding — debt.
- Invoking the 'Bessent put': Markets already are using the term to describe the Treasury moves, and the secretary can use his tools in an unpredictable manner.
Credibility at stake
Whichever route he chooses — and he could also choose to do nothing and let the markets sort it out — Bessent could face credibility challenges from a market already growing skeptical and leery of the challenges Treasurys are facing.
