Less than a day after the US Treasury doubled the size of its debt buyback programme, market pressure returned with a vengeance. Yields on 10- and 30-year US government bonds climbed back above their pre-announcement levels, erasing the brief relief that Wednesday's move had delivered. The reversal forced Treasury Secretary Scott Bessent to step forward again, making clear that the $4 billion (€3.4bn) ceiling per operation was not a strict limit but a baseline.
"We routinely do buybacks, and we're going to increase the size of the buyback," Bessent said in an interview, adding that "it could be more than the $4 billion per issue." His remarks came as the 30-year yield traded at 5.25% after hitting 5.33% on Tuesday, while the 10-year yield stood at 4.7% after topping 4.75% the same day.
Thin liquidity and geopolitical noise
Bessent attributed the strain to weak liquidity, particularly at the long end of the curve. "Part of it is signalling here, and to show that we believe that the yields don't reflect the underlying fundamentals," he said, referring to the conflict with Iran. "This Iran conflict, we will get on the other side of this... we don't know when." He stopped short of committing to a specific figure, saying the Treasury would keep monitoring conditions.
"All we're trying to do is get people to focus on the fundamentals and not trade the headlines during a quiet period in a thin market," Bessent concluded. The comments echo concerns that have also rattled European bond markets, where soaring yields have been driven by similar inflation worries and geopolitical uncertainty.
A fiscal plan after $40 trillion debt
Bessent used the interview to preview an upcoming announcement on fiscal consolidation. "We are announcing probably at the end of this week, beginning of next week an increased focus on fiscal consolidation... and it's coming from President Trump," he said, adding that the Treasury has "a big toolkit" beyond buybacks. The plan will examine both revenue and cost sides.
Reacting to the US national debt crossing a record $40 trillion (€34.4tn), Bessent downplayed the milestone: "There's nothing magic about the $40 trillion number... we can grow our way out of that." He also blamed the previous administration, noting that the US had the highest deficit-to-GDP ratio in history under Biden, while the Trump administration lowered it by a percentage point last year.
However, public spending and government borrowing have surged this year due to the Iran war and other policy decisions, despite President Trump's pledge to stabilise finances. The situation has parallels in Europe, where rising bond yields are already squeezing public budgets and mortgage holders.
Investors remain sceptical
Not everyone was reassured. Krishna Guha at Evercore ISI dismissed the plan as "a weak form of Operation Twist" that risks backfiring if it is read as a sign Washington is struggling to fund itself cheaply. He noted that Bessent's appearance itself had barely moved the bond market. Operation Twist is an unconventional monetary policy tool used by central banks, most notably the US Federal Reserve, to buy long-term bonds while selling short-term securities to flatten the yield curve.
The market's reaction underscores the fragility of investor confidence in US fiscal management. As the Treasury prepares its next move, the focus will be on whether the promised fiscal consolidation can materialise without further unsettling global bond markets. For European investors, the spillover effects are already visible, with gold and silver rallying on debt fears and oil and bond yields climbing as geopolitical tensions persist.
