US Treasury Secretary Scott Bessent indicates that the federal authority plans to incorporate several tools to restrict long-term treasury yields from surging further. Over the past week, Bessent has taken several measures to ease the pressure on the Treasury market. This was done to reduce the long-term rates that rose to a 19-year high. Rising yields raise borrowing costs across mortgages and corporate debt.
The moves include the first US currency intervention to support the yen since 1998. Officials routed the operation through euros rather than dollars, limiting the need to sell Treasuries. Bessent also pointed to a Federal Reserve facility Tokyo could tap in future. It also indicates a change in Treasury guidance that markets elucidated as a route to low long-term bond issuance.
Bessent To Ease Pressure on Treasury Markets
The move was to support Japan and the yen. But the trade-offs believe that it could also ease the U.S. Treasuries. Otherwise, Japan would sell U.S. government bonds to raise dollars required to support its own currency. By steadying the yen, the intervention could decrease the need for Japan to sell Treasuries and reduce pressure on the U.S. bond market. Bessent also pointed to the Federal Reserve’s Foreign and International Monetary Authorities (FIMA) repo facility, which lets foreign central banks borrow dollars against their Treasury holdings.
Bessent has said he wants FIMA “upsized.” The facility carries a $60 billion daily limit per counterparty, against Japanese holdings of roughly $1.1 trillion in Treasuries. Any permanent expansion would require an FOMC vote. The stated purpose was supporting Japan and the yen. Analysts read a second motive in easing pressure on US Treasuries.
Another change was put forward during last week’s quarterly Treasury bond sales announcement. Decrease in the supply of longer-dated Treasuries could contain the pressure on the long end of the yield curve. This is crucial at a time when the US Federal Authority is issuing large amounts of new debt.
The U.S. is working on annual budget deficits of nearly $2 trillion, creating a huge need for extra borrowing. Persistent inflation has kept pressure on long-term rates. Priya Misra, a portfolio manager at JPMorgan Asset Management, said that the combination of Japan’s intervention, support for Fed Chair Kevin Warsh, and the probability of reducing long-end Treasury supply could hint that the Treasury is cautious and is willing to use the mechanisms available for it.
Bessent Supports Fed’s Strategy As Economic Pressure Increases
Bessent backed the new communication strategies of Fed Chairman Kevin Warsh, whose comments following last month’s meeting added to a rise in Treasury yields. The rise was due to his unclear explanation on how or when the central bank might act to decrease inflation. Bessent has made lowering the 10-year Treasury yield a stated administration priority. The 10-year yield is a benchmark for mortgages and other borrowings throughout the economy. Bessent said the administration’s fiscal policies would help lower yields by reducing federal authority spending and easing inflation. He later described himself as the nation’s top bond salesman and said that the Treasury yields were a strong measure of the administration’s success. Spending cuts have had limited effect, while tax reductions are projected to add substantially to US debt over the coming decade.
The US-Iran war has added a fresh shock, feeding inflation concerns and helping push the 10-year yield to around 4.6%, up from 4.1% at the start of the year. “With the spending policy that’s been adopted and the war, it’s going to be hard to relieve pressure on the long end,” said John Velis, US macro strategist at BNY.
The measures read less as a solution than as an attempt to hold the long end steady against pressures the Treasury does not control. The Treasury can affect bond supply and global market conditions but consistent inflation, fiscal deficits and government borrowing needs remain out of its control.
The combination of the Japan intervention, probable changes to long-term Treasury issuance, and support for global access to dollar liquidity suggest that the Treasury is focused on limiting borrowing costs. Whether they are enough to offset the forces pushing long-term yields higher remains unclear.
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