U.S. Treasury Secretary Scott Bessent is under growing pressure to intervene decisively in bond markets after the 10-year yield climbed 19.1 basis points this week, closing at 4.975% and edging within striking distance of the psychologically significant 5% threshold.
Yardeni Research urged Friday that the so-called "bond vigilantes" are daring Bessent to deploy the full breadth of his toolkit — a scenario the firm has dubbed the "Bessent Twist." In a note published Friday, Yardeni wrote that such a move would entail significantly larger bond buybacks financed by issuing additional Treasury bills.
Over recent weeks, Bessent has showcased several measures aimed at curbing rising yields, including currency support for the yen alongside Japan, an expansion of long-bond buybacks, and the potential drawdown of the Treasury General Account to fund further purchases.
The most recent buyback operation fell well short of market expectations. The Treasury Department unveiled a $6 billion buyback in the 10- to 20-year maturity range, against anticipated demand of at least $10 billion. Final results showed total offers of $10.489 billion with only $5.187 billion accepted, underscoring the modest scale of the intervention relative to the broader market.
Yardeni noted that the $6 billion figure represents "little more than a rounding error" in the $31.8 trillion Treasury market, which includes $5.5 trillion in long bonds. The department had already signaled in August that it would increase buyback sizes for longer-term bonds from at least $2 billion to at least $4 billion.
The bond rout has pushed the 30-year Treasury near a two-decade high, while the benchmark 10-year and the shorter-dated 2-year have also scaled multi-year peaks. Drivers include spiking oil prices fueling inflation concerns, mounting anxiety over massive capital being directed toward AI infrastructure, and persistent worries about ballooning U.S. fiscal debt.
Adding to market tension, the Federal Reserve is widely expected to deliver a 25 basis point rate hike at its upcoming meeting next Wednesday. Yardeni argued that such a move would reinforce the Fed's inflation-fighting credibility and could ease upward pressure on long-term yields, adding that the central bank should have acted back in July.
Despite the headwinds, Yardeni maintained its base-case outlook, projecting that policy actions and strong buying at current levels will keep the 10-year yield within its expected 4.00% to 5.00% range.
