The time Scott Bessent tried to outsmart the bond market

Bond-market pressure tests Treasury Secretary Scott Bessent’s strategy

Earthguardiansonline.com – Scott Bessent arrived in the Trump administration with an unusually strong reputation in global finance, but his effort to bring down borrowing costs has collided with the unforgiving realities of the US bond market.

As Treasury secretary and President Donald Trump’s leading economic representative, Bessent has projected confidence in his ability to influence market expectations. He has told traders, “I am the house now,” and brushed aside objections from market professionals with a pointed remark about “some of the Bloomberg Terminal bros” being unhappy with his approach.

His objective was clear: push Treasury yields lower, especially the closely watched 10-year rate, and reduce the cost of credit across the economy. Yet yields have moved in the opposite direction. The 10-year Treasury yield briefly exceeded 5.04% on Tuesday, reaching its highest point since 2007.

That move matters far beyond trading desks. Treasury yields help shape mortgage rates, business lending costs and the government’s own financing expenses. As yields rise, households face more expensive home loans, small firms can pay more to access credit, and Washington must devote additional resources to servicing federal debt.

A high-profile intervention

Earlier last year, Bessent said he wanted the 10-year yield below 4%. Instead, rates have continued to climb. When yields became particularly elevated last month, Treasury took a controversial step that surprised many Wall Street participants: it expanded Treasury buybacks to three times their prior scale.

The intervention was intended to help calm market conditions and ease pressure on yields. But critics argue it did not achieve that result. Bond yields are now above the levels seen before the policy move.

“It massively flopped,” Hardika Singh, economic strategist at Fundstrat, said earlier this month. “If anything, this may have made the problem worse. Bessent showed his hand. To investors, it was like, ‘Oh my gosh, he’s worried.’ We should be too.”

The episode illustrates a central challenge for any Treasury secretary: the bond market is vast, liquid and driven by expectations about inflation, growth, fiscal policy and future government borrowing. Technical actions can influence trading conditions, but they may struggle to overcome concerns about larger economic fundamentals.

Tim Mahedy, chief executive of Access/Macro and a former official at the Federal Reserve Bank of San Francisco and the International Monetary Fund, said Bessent’s actions have produced the reverse of their intended effect.

“The data is clear. He’s added accelerant to the fire. He’s had the exact opposite impact that he wanted,” Mahedy said.

Deficits remain a core concern

Critics of the strategy point to the federal budget outlook as the larger problem. The United States carried substantial debt before Bessent entered office, and responsibility for the country’s fiscal condition spans both political parties. Still, Trump and Bessent had pledged to improve the outlook, including through a goal of reducing the federal deficit to 3% of gross domestic product.

Instead, budget shortfalls are running at roughly double that target, even with unemployment low and the White House maintaining that the economy remains strong. For investors, persistent large deficits can raise questions about how much debt the government will need to issue and what return buyers will demand to hold it.

Douglas Holtz-Eakin, who served as a senior economist under President George W. Bush and now leads the center-right American Action Forum, argued that attempts to manage yields cannot substitute for changes to the budget picture.

“I don’t think you can fool mother nature. You’ve got to fix the fundamentals,” Holtz-Eakin said.

He described the effort to control yields as “doomed to fail” because it did not confront the prospect of trillion-dollar deficits continuing for years. Holtz-Eakin also said the administration had worsened the situation.

“They’ve made it worse. There’s no way around that,” Holtz-Eakin said.

Why the 10-year yield reaches everyday borrowers

The 10-year Treasury yield is often treated as a market benchmark because it influences many longer-term interest rates. Mortgage rates do not move in lockstep with it, but they tend to track the same direction. With the 10-year yield elevated, mortgage rates have climbed to their highest level since June 2025.

That creates a direct burden for prospective buyers and homeowners seeking to refinance. Higher financing costs can also affect local businesses that need loans to expand, purchase equipment or manage cash flow. At the federal level, higher rates can make the deficit harder to reduce because interest payments consume a larger share of government resources.

David Wessel, a senior fellow in economic studies at the Brookings Institution, said a market intervention of this kind would make more sense under very different circumstances: a serious breakdown in market functioning followed by credible action on the government’s budget.

“But this isn’t a market-functioning-style emergency. It’s a politically inconvenient increase in yields,” Wessel said.

The distinction is important. Markets can need support during periods when trading is impaired or liquidity disappears. But a rise in yields driven by investor views on inflation, deficits and policy direction is more difficult for officials to address through buybacks alone.

Trump policies complicate the assignment

Bessent’s task has also been shaped by policies set by the president. Last year, Trump launched a worldwide trade conflict that unsettled bond investors and reversed progress on inflation. Bessent received credit for persuading Trump to pause those global tariffs last spring, a development that helped trigger a major rally in bonds and, particularly, stocks.

This year, Trump’s military conflict with Iran has added another source of uncertainty for markets and intensified concerns about the cost of living. Such developments can affect inflation expectations, energy-related costs and investor appetite for government debt.

“He’s been taken for a ride by Trump’s chaos policy,” Mahedy said.

Bessent is no stranger to high-stakes financial battles. He helped George Soros profit from a major 1992 wager against the British pound, a trade that contributed to Britain abandoning efforts to support its currency and generated more than $1 billion for Soros. But confronting the US Treasury market is a different assignment. The market’s direction is tied not only to trading tactics, but also to the country’s fiscal choices, inflation outlook and confidence in the path of economic policy.