The macroeconomic paradigm is undergoing a fundamental shift. Previously, markets would only calm down in response to decisive actions by the Federal Reserve (such as the launch of quantitative easing in 2008 or emergency rate cuts during the pandemic). Today, the role of the primary market stabilizer is shifting to the US Department of the Treasury. The Treasury’s recent announcement to increase the monthly buyback of long-term Treasury bonds from $2 billion to $4 billion clearly signals an intent to artificially suppress yield growth. However, deeper strategic motives may lie behind this ostensibly technical step.
The current US administration is demonstrating an overtly transactional, corporate approach to economic management. Donald Trump is actively lobbying for government equity stakes in key American companies and utilizing tariff instruments to directly replenish the federal budget. Treasury Secretary Scott Bessent, leveraging his background as a hedge fund manager, has initiated two aggressive market interventions in recent weeks: a coordinated foreign exchange intervention with Japan, and the launch of a government bond buyback program masked as a routine technical operation.
Tactically, the objective was achieved: 30-year bond yields retreated from highs not seen since 2007. Structurally, however, the Treasury lacks the resources to reverse the global upward trend in yields. The Treasury market is valued at $31 trillion, making a $2–4 billion buyback statistically insignificant. Meanwhile, the federal budget deficit alone amounted to $432 billion in July. To finance this deficit, the Treasury will be forced to ramp up short-term debt issuance in parallel with long-term bond buybacks, which will inevitably drive rates higher across the entire yield curve over time.
Furthermore, the rally in government bond yields is underpinned by three fundamental factors: a growing budget deficit, unprecedented capital demand from the artificial intelligence sector, and geopolitical instability. Scott Bessent can only exert influence over the first of these. Given that US gross national debt has surpassed the $40 trillion mark, and the IMF projects the US budget deficit to remain around 7.5% of GDP in 2026, the Treasury Secretary’s room for maneuver is critically constrained.
Leading investment banks, including Citigroup and Deutsche Bank, posit that the Treasury’s true objective is the deliberate weakening of the US dollar. The US Dollar Index (DXY) indeed experienced a sharp decline, brushing aside both Middle Eastern geopolitical risks and the “hawkish” rhetoric found in the minutes of the latest FOMC meeting. There is a well-founded risk that the greenback is heading toward structural devaluation, mirroring the long-term trajectory of the Japanese yen.
The Treasury has clearly signaled that a 5.3% yield on 30-year paper represents a critical pain threshold. Henceforth, investors must price into their models the risk that the regulator will resort to new, larger-scale interventions to suppress rate growth.
From a technical perspective, if recent currency interventions were merely “reconnaissance in force,” market participants would be wise to take partial profits on EUR/USD long positions opened from the 1.1600 level, or consider opening short positions at current levels, as well as within the resistance zones of 1.1700 and 1.1730. Speculators in the Treasury bond market will test the Treasury’s resolve to defend its target levels just as yen bears previously tested the resolve of Japan’s monetary authorities.
