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Treasury steps into Fed’s shoes: Bessent fires $10 billion bazooka to calm bond market’s tantrum

Bessent is stepping into the Fed's empty shoes without asking for permission.
 

In markets, when central banks sleep at the wheel, treasuries tend to veer off-road—and right now, the bond market is careening toward a cliff. With Fed Chair Powell still stubbornly twiddling his thumbs despite 30-year yields edging toward the hair-raising 5% cliff, Treasury Secretary Scott Bessent isn’t waiting around for the cavalry to wake up—he’s sending his own troops into battle.

Flash back to April 14, when Trump’s "Liberation Day" sparked a bond sell-off that triggered the dollar fire sale from Tokyo to Frankfurt—amplified by a brutal unwind of the $2 trillion basis trade. That day, Bessent stepped up, hitting Bloomberg TV airwaves to soothe traders' frayed nerves. Casually mentioning his weekly breakfasts with Powell, Bessent hinted that if the Fed refused to lift a finger, the Treasury would flex its own muscular toolkit, potentially dialling up its Treasury buybacks. Traders shrugged it off as rhetoric at the time. They aren't shrugging anymore.

Fast forward six weeks, and Bessent has made good on his threat, pulling off the mother-of-all Treasury buybacks on Tuesday—a stunning $10 billion operation, the largest in U.S. history. If QE is the Fed’s heavyweight champion, then these Treasury buybacks are quickly emerging as a scrappy contender—call it "QE lite"—operating quietly but forcefully in open-market style, similar to equity buybacks. And this time, Bessent is stepping into the Fed's empty shoes without asking for permission.

The historical scale of this move can't be overstated. While the Treasuries gobbled up in this round had relatively short maturity dates (July 2025 through May 2027), the game is about to shift into higher gear. On Wednesday, Bessent’s Treasury will come back to the market again, this time targeting longer-dated paper maturing between 2036 and 2045. Tomorrow’s buyback limit is doubling from $1 billion in May to a hefty $2 billion. For bond traders, this is the Treasury drawing a bright red line in the sand: yields above here are too dangerous, too costly, and too toxic.

Make no mistake, the scale-up from April’s smaller buys—used to steady the ship as Treasuries tumbled without a Powell put in sight—is deliberate. Bessent is sending a clear signal: If Powell continues to sleepwalk, Treasury won’t just fill the vacuum, it will aggressively reclaim control. After two years of Janet Yellen’s activist Treasury Issuance flooding markets, it now appears that Bessent is ready to roll out his own activist strategy—Treasury Buybacks, turbocharged.

So the question every trader needs to ask: Has Bessent effectively replaced Powell, stepping up as the bond market’s new sheriff in town until the Fed finally decides to wake up and smell the sub-2% core PCE? The answer could reshape not just yields, but the entire market landscape.

Author

Stephen Innes

Stephen Innes

SPI Asset Management

With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.

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