USD safe from Bessent, for now

Yesterday’s Treasury auction proved much more intriguing on paper than in impact, with the volume of cash deployed by the Treasury being tripled from previous buybacks. Overall, it seems the Treasury is on track to spend $6bln in this auction alone, buying 10-to-20-year Treasuries. This has had little to no effect, with the 10-year yield rising today to its highest since October 2023 off the back of rising Oil prices stoking inflation fears.

If this was Bessent’s blockbuster action after the statement, he has been roundly taught that even $6bln is just a very small drop in a very large ocean. Whilst the buybacks may be having a limited depressing effect on yields, the key word must be “limited”, raising the question: could any market intervention really shift yields meaningfully? The scale of US debt has grown to such a degree that anything short of a meaningful change in fiscal policy would likely prove ineffective against rising rates.

Take today’s PPI release for example, showing the most aggressive rate of price increases amongst producers for three months on surging energy costs. This relatively minor release has had the effect to raise the markets expectations of a hike from the Fed at their September meeting from 61% to 70%.

Against such significant movements, Bessent is helpless and unless he dramatically increases the size of such buybacks again, his hopes of lower financing costs could turn quickly to dust. Good news for Dollar bulls, with the initial panic over lower yields dragging the greenback down looking increasingly overdramatic.