Will the impact of repurchasing US Treasury bonds only last 24 hours? Besennet: We have many tools at our disposal, let's wait and see.

Authors: Li Dan, Long Yue

On Thursday, August 20th, Eastern Time, U.S. Treasury Secretary Bessant released a series of policy signals, covering everything from the recent market focus on the U.S. bond market to the Iran issue. Just the day before, the Treasury announced it would double the size of its long-term Treasury bond repurchase program, but the market rebound lasted less than 24 hours. Faced with rising yields again, Bessant clearly stated that the Treasury's intervention tools are far from exhausted and foreshadowed a new fiscal consolidation initiative aimed at addressing the problem of high borrowing costs across multi-year maturities.

Bessant indicated that the Treasury's single long-term debt repurchase program could exceed $4 billion, emphasizing , "We have a huge toolbox, so stay tuned." He also revealed that President Trump has tasked him and the Director of the Office of Management and Budget with leading a new fiscal consolidation plan, expected to be released this weekend or early next week.

Bessant also stated that current US Treasury yields do not fully reflect the fundamentals of the US economy, especially given the "extremely scarce" liquidity in 30-year Treasury bonds; regarding the US dollar, he reiterated his commitment to maintaining a strong dollar policy. On corporate financing, he believes that anticipated AI investment is making companies "almost insensitive" to yields when issuing corporate bonds, and that corporate investment is ultimately expected to drive productivity growth.

Bessant revealed that a press conference will be held on August 24th, next Monday, to elaborate on the US action plan against Iran. Bessant hinted that increased economic pressure could be a key means of avoiding a renewed large-scale military conflict. CCTV noted that he said, "We have asymmetric information. I'm not sure why the oil issue is the focus. If we exert maximum economic pressure, it means a large-scale military conflict is unlikely."

According to Xinhua News Agency, Bessant stated that the Trump administration will increase economic pressure on Iran and threatened to impose "unprecedented economic isolation" measures on Iran. Bessant also addressed all US allies, saying, "We are going to overthrow this regime," and warned that they must either stand with the US or become its enemy.

Bessant also stated that he reiterated his strong dollar policy, saying the dollar is returning to levels seen two months ago, and he did not understand the rise in oil prices on Thursday.

The buyback boost only lasted one day? Bessenter says "it's all noise for the next 24 hours."

The U.S. Treasury Department announced on Wednesday, August 19, that it would at least double the size of its liquidity support repurchase operations for 10- to 20-year and 20- to 30-year Treasury bonds, raising the maximum amount for a single operation from $2 billion to at least $4 billion. The Treasury Department positioned this move as a measure to improve liquidity in the long-term Treasury bond market.

Following the announcement, US Treasury yields initially fell significantly, providing a brief boost to global bond markets. However, this positive effect was short-lived. On Thursday, US long-term Treasury yields rebounded, with the 30-year yield rising approximately 7 basis points to 5.26%, returning to levels seen before the Treasury announced the expansion of its repurchase program; the 10-year yield also touched 4.71%.

Reuters reports that the relief provided by the Treasury's buyback measures may be short-lived, with the market still focused on the massive U.S. fiscal deficit, inflation expectations, and long-term bond supply pressures. TD Securities strategist Howard Du previously stated that the market is "not entirely convinced" that Bessant can effectively suppress long-term yields. Franklin Templeton's head of fixed income, Andrew Canobi, pointed out that multiple forces are currently driving yields upward and the yield curve steepening, including fiscal pressures in major developed economies and persistent inflation.

In response to the market volatility, Bessant calmly stated in a CNBC interview: "Anything that happens in 24 hours is just noise." The Treasury's goal is to restore balance to the weak market and get investors back to fundamentals, rather than chasing headlines in a thin market.

There is no upper limit to the buyback "toolbox," and a single transaction could far exceed $4 billion.

When asked whether the Treasury Department would intervene further in the U.S. Treasury market, Bessant gave a fairly clear signal.

He stated that the current government bond market is a lightly traded sector, and the Ministry of Finance has a well-equipped and powerful toolbox in this area. "We have a vast toolbox, so let's wait and see. Part of the job is to send a signal—indicating that we believe yields do not reflect the underlying fundamentals."

Bessant particularly emphasized that the market may not be fully paying attention to the fundamental factors of the US economy. He believes that current US Treasury yields do not reflect the fundamentals, and liquidity in 30-year US Treasuries is particularly scarce.

Bessenter did not set a specific upper limit on the size of the buyback program, only stating that it would depend on the conditions.

This means that after the Treasury Department announced an expansion of the repurchase program, Bessant did not signal a "stop there," but instead clearly reserved the possibility of further action. Market reports indicate that Bessant even stated that a single repurchase could exceed the previously announced $4 billion.

Bessant also stated that the United States can rid itself of its debt burden through its own development. In other words, while the Treasury Department alleviates long-term financing pressures through market operations, he still places the ultimate solution to the US debt problem on economic growth and productivity improvement.

A fiscal consolidation plan is about to be released; Bessant says it may be announced this weekend or early next week.

Beyond market operations, Bessant also revealed a more structurally significant policy trend: the Trump administration is about to launch a new round of fiscal consolidation.

"We may announce measures to strengthen fiscal consolidation this weekend or early next week," Bessant said in a CNBC interview. He also told reporters that President Trump has personally tasked him and Office of Management and Budget Director Russ Vought with leading the plan.

Bessant did not specify what the new fiscal plan would entail. However, he hinted that it might include saving "hundreds of billions of dollars" through a fraud task force and cutting federal program funding that had been "squandered" and allocated to states.

It is worth noting that on Wednesday, data from the U.S. Treasury Department showed that the total U.S. public debt surpassed $40 trillion for the first time.

Markets are clearly divided on the actual effectiveness of this fiscal consolidation plan. Sarah Bianchi, chief strategist at Evercore ISI, wrote in a report on Thursday: "We are skeptical of the government's ability to take substantial action on the deficit. The effect of this week's surprise buyback announcement was short-lived, and we believe any deficit-related announcements will have a similarly limited impact."

However, Bessant remains optimistic about the fiscal outlook. He stated that the U.S. fiscal deficit "very likely" has peaked. He attributes this to the recovery in tariff revenue—after the Supreme Court overturned most of Trump's tariffs imposed last year, the government is rebuilding the import tax system, and related tariff revenue is recovering.

"Putting all of this together, the coming weeks and months will be very exciting as we move this plan forward," Bessant said, referring to the new financial plan.

Can a fiscal version of QT (Quick Transfer) work by using short-term debt financing to repurchase long-term debt?

Another point of market focus regarding the Ministry of Finance's repurchase operations is where this money comes from.

The Treasury Department's statement on Wednesday did not specify the exact source of funds for this expanded repurchase operation. The Treasury typically relies on issuing short-term treasury bills with maturities of one year or less to address fluctuations in financing demand.

If the Treasury actually uses increased issuance of short-term Treasury bills to fund the repurchase of long-term U.S. Treasury bonds, this operation could have a fiscal version of "Operation Twist" (QT)—changing the maturity structure of the Treasury market by increasing short-term debt and reducing the supply of long-term debt.

The Financial Times previously cited market analysts to discuss this possibility; Bloomberg also cited a Deutsche Bank strategist report describing the change as "QT is coming."

However, this does not mean that the Treasury is implementing quantitative easing in the traditional sense.

Unlike the Federal Reserve, which can directly create bank reserves, the Treasury cannot create Treasury bills out of thin air and use them directly as a means of payment for purchasing long-term Treasury bonds. If short-term debt is issued to fund repurchase agreements, investors will ultimately still need to purchase these short-term Treasury bills.

Therefore, some market participants believe that the actual increase in demand for long-term assets from such operations may be quite limited. A Bloomberg commentary even points out that even if the scale of repurchases expands further, the new demand will still be very limited relative to the huge stock and issuance of long-term US debt, making it difficult to change the supply and demand pattern of long-term US Treasury bonds on its own.

This is also one of the key reasons why the market quickly pushed up long-term yields again on Thursday: the Treasury can influence the market's liquidity structure, but it is difficult to eliminate fiscal deficits, debt supply and inflation risks simply through repurchase agreements.

AI investments are making companies less sensitive to financing costs, and Bessant is optimistic about productivity growth.

In addition to government debt, Bessant also discussed the rapidly expanding corporate bond issuance in recent years and the impact of AI investment on the bond market.

He stated that, because companies believe they can reap high returns from AI investments in the future, the corporate bond issuances he observed were "almost insensitive to yields."

Bessant said that it is interesting for companies to issue long-term bonds, and if he were a corporate executive, he would pay more attention to the middle of the yield curve, also known as the "belly".

In his view, corporate investment will ultimately boost productivity growth, so many companies’ current financing practices will not change significantly due to short-term changes in yields.

This assessment also corresponds to another pressure currently facing the bond market: the construction of AI infrastructure requires a large amount of capital expenditure, and technology companies and related industrial chain companies continue to raise funds through the bond market, which is increasing the supply of credit bonds.

But Bessant is more focused on the long-term economic returns that AI investments may bring. In his logic, if AI investments can truly translate into productivity gains and economic growth, then the relatively high financing costs that companies currently bear may ultimately be offset by higher investment returns.

Bessant reiterated the strong dollar policy, saying the dollar is returning to levels seen two months ago.

Regarding the US dollar, Bessant's signals were relatively clear.

He stated that the dollar has remained very stable. The dollar is returning to levels seen two months ago. When asked about the dollar's weakness following the Treasury's announcement on Wednesday of expanded repurchase agreements, Bessant reiterated, "We will continue to maintain a strong dollar policy."

This statement came after the Treasury expanded its long-term bond repurchase program. The market had previously worried that the Treasury's direct intervention in the long-term US Treasury market could exacerbate investor concerns about US policy intervention and the risks associated with dollar assets. Bloomberg reported that some investors even believed the dollar could become a potential "victim" of this bond market intervention.

But Bessant clearly wanted to send the opposite message to the market: the Treasury’s market operations did not mean that the United States was abandoning its strong dollar policy.

The Trump administration is shifting its focus to economic pressure and will hold a press conference on Iran next Monday.

When discussing the Iran issue, Bessenter sent another important policy signal.

According to Xinhua News Agency, Bessant threatened on Wednesday to impose economic isolation on Iran, saying in an interview with NBC that "this would be the largest and most coordinated economic isolation in history."

He stated that he would hold a press conference next Monday to discuss the US actions against Iran, and that the US would impose the "toughest" sanctions in history on Iran.

The US government is currently attempting to force concessions from Iran by further intensifying economic, financial, and trade pressure. The day before Bessant's speech, Xinhua News Agency reported that US President Trump posted on social media on the 19th that Iran had missed a golden opportunity to reach an agreement with the US, and he announced "the most devastating economic action against a country in history" against Iran.

Bessant's latest statement is particularly noteworthy because Xinhua News Agency reported that Bessant said the Trump administration's plan to severely damage the Iranian economy might eliminate the need for a large-scale military operation against Iran. He said:

"If we exert maximum economic pressure, it means that a large-scale military conflict is less likely to break out."

In other words, the Trump administration's current tools of pressure on Iran may be shifting further from military means to economic and financial sanctions.

Xinhua News Agency, citing US media analysis, pointed out that launching an "economic war" against Iran by the United States is not without its difficulties. Iran has long been subject to US sanctions and has developed a certain resilience to such pressure. Furthermore, the Iranian issue is closely related to global energy supply and shipping security in the Strait of Hormuz; therefore, escalating US economic sanctions could also have complex spillover effects.

Bessent announced that it will provide further details of the operation next Monday, which means that the market may soon have more information about the scope, targets, and implementation methods of the sanctions.

Bessant was "baffled" by the sudden surge in oil prices, saying that US actions would push oil prices down.

It is worth noting that Bessant himself was surprised by Thursday's rise in oil prices, as the United States prepared to exert further economic pressure on Iran.

"We're seeing a surge in oil prices today, which I really don't understand," Bessant said.

He also said that the upcoming U.S. economic actions would cause oil prices to "fall back faster".

Oil prices have become a crucial variable that US policymakers must address. Rising crude oil prices not only increase energy costs for US consumers and businesses but may also reignite inflation expectations, thereby further pushing up long-term US Treasury yields.

This is directly related to Bessant's current efforts to stabilize the long-term U.S. Treasury market: if the situation in Iran leads to a continued escalation of energy supply risks, rising oil prices and inflation expectations could offset some of the impact of Treasury repurchase operations on long-term yields.

Therefore, while Bessant emphasized that the Treasury Department had a sufficient "toolbox" for the US Treasury market, he also tried to use economic means to reduce the risks related to Iranian energy. In fact, there is a common policy logic behind this: to minimize the external shocks to the long-term financing costs of the United States.

The market has already given an initial response with Thursday's 30-year Treasury yield rising back to 5.26%: the Treasury's market operations can quickly change short-term trading sentiment, but to truly reverse the long-term yield trend, it ultimately depends on broader fundamental factors such as the fiscal deficit, inflation, economic growth, energy prices, and the supply and demand of US debt.