Bessent's bond market intervention was harshly warned by “mentor” Drucken Miller: Artificially reducing yields is “delaying subsidies” and will be unsustainable for a long time

The Zhitong Finance App learned that US Treasury Secretary Scott Bessent (Scott Bessent)'s recent intervention in the bond market, although driving a slight decline in long-term yields, has also attracted increasing voices of doubt — critics believe that these operations will be unsustainable for a long time and may have dangerous consequences.

Wall Street is generally skeptical about whether the Treasury has enough “firepower” to manage the fixed income market. Throughout 2025, the size of newly issued US treasury bonds reached about 4.8 trillion US dollars, and this figure is expected to rise further this year.

Bezent has proposed at least doubling the Treasury's repurchase of long-term treasury bonds. Furthermore, the Ministry of Finance intervened in the foreign exchange market in late July to support the yen, thereby preventing the Bank of Japan from being forced to sell US bonds — the latter is likely to boost US Treasury yields.

These efforts have lowered long-term yields from their recent peak (the highest level since before the 2008 global financial crisis), but market experts believe these measures are doomed to failure, especially when the US has not begun to resolve its fiscal dilemma — the current total federal debt has just surpassed $40 trillion, and the 2026 budget deficit is steadily moving towards the $2 trillion mark.

The latest to join the criticism camp is Stanley Druckenmiller (Stanley Druckenmiller) — head of the Duquesne Family Office, a well-known family office, and more symbolically, he is Bezent's mentor in the investment field. In the early 90s of the last century, the two teamed up with George Soros (George Soros) to plan a classic sniper campaign against the British pound.

Drucken Miller warned that in the absence of fiscal discipline, the practice of forcibly suppressing yields would be harmful and unbeneficial to the market, and would also damage the credibility of the Ministry of Finance.

In his review article, he wrote, “If the yield on 30-year treasury bonds must reach 5.5% to clear the market, it's not a crisis; it's a bill. The only way to keep long-term returns down is to resolve the underlying deficit.”

“Delayed allowances”

In this article entitled “Let the Bond Market Speak Out,” Drucken Miller urged Bezent to abandon the repurchase plan announced on August 19, free the market from the government, and price treasury bonds reasonably on its own.

He wrote, “Every 1 basis point of artificial reduction in yield is a subsidy for procrastination. Once the market believes that the Ministry of Finance is defending a certain price, every increase in yield will be a test of official determination, and intervention operations must continue to increase to pass these tests.”

He further stated, “The government's price defense against fundamentals has never won; the only variable is how much they will invest before they pledge to lose.”

The Treasury Department did not immediately respond to a request for comment on Drucken Miller's review article.

Bezent's initial plan is to at least double the Treasury's regular buyback of $2 billion of “non-current securities” (i.e. previously issued securities) — the program was initiated by its predecessor Janet Yellen (Janet Yellen) two years ago. Additionally, Ministry of Finance sources revealed this week that the department may also use its $935 billion general account (TGA) to fund fixed income purchases.

However, the market still has doubts about whether even taking this path will be sufficient. A general account is essentially a “chequebook” of the Ministry of Finance to fund government operations, and has been used during the National Assembly's many debt ceiling impasse, so there is limited space for use.

Recent operations have been compared to the Federal Reserve's past tools to provide liquidity to the bond market and suppress interest rates. One is “Operation Twist” (Operation Twist), that is, selling short-term debt and buying long-term debt; the second is quantitative easing (QE), where the Federal Reserve directly uses its own resources to buy fixed income assets.

The difference is that, unlike the Treasury, the Federal Reserve is not bound by a limited cash balance and can finance purchases by creating reserves.

The Federal Reserve's position

BCA chief strategist Ryan Swift (Ryan Swift) stated in a client report: “If the US government seriously wants to suppress yields, the Federal Reserve must participate. Unless the Federal Reserve uses its balance sheet, any effort by the US government to suppress bond yields will fail. In fact, if investors start to smell that the government is already anxious, these measures may even backfire.”

However, Swift believes that Federal Reserve Chairman Kevin Warsh (Kevin Warsh) may be reluctant to step in. During his short time in charge of the Federal Reserve, Walsh repeatedly emphasized the importance of letting the market perform its own price discovery function.

Walsh said after the July Federal Reserve meeting: “Market participants are learning to deal with 'balls' rather than getting tangled with 'judges' — market prices will continue to respond in the direction and magnitude they see fit.”

Similar to other opinions, Swift believes that there is nothing particularly worrying about the recent rise in yield. He pointed out that based on the Federal Reserve's benchmark interest rate and market expectations for the central bank, combined with factors such as inflation, unemployment, and market fluctuations, the yield on 30-year long-term bonds is close to “fundamental fair value.”

Currently, the yield on 30-year treasury bonds is only slightly above its 50-year average (about 5.16%); as of Tuesday morning, the yield on the benchmark 10-year treasury bond was actually exactly the same as the historical average of 4.64% since the early 1960s.

Nohshad Shah (Nohshad Shah), head of fixed income sales for Europe, Middle East and Africa at Citadel Securities (Citadel Securities), wrote: “The bond market is sending a straight forward signal: fiscal or monetary policy should be further tightened. Stopping the treasury from being paid at a lower price won't take away this pressure... it just shifts the pressure elsewhere.”

The Federal Reserve will have a say in the interest rate meeting on September 15-16. According to estimates by the Chicago Mercantile Exchange Group (CME Group), the probability that the market's current pricing will raise interest rates in September is about 40%. Walsh will deliver a speech at the Federal Reserve's annual meeting in Jackson Hole, Wyoming on Friday. At that time, he may respond to issues related to the Treasury Department.

Krishna Guha (Krishna Guha), head of economics and central bank policy at Evercore ISI, said that Walsh may be trying to avoid intervention. He wrote, “It's not easy for Walsh to calm the market without contradicting Bezent's unconventional practices; he may choose to remain silent.”