20.08.2026 - 2nd Intervention – Bond Market out of Control?
Just one day after Treasury Secretary Scott Bessent announced that the US Treasury would double its debt buyback program from USD 2 billion to USD 4 billion, he was already back with another message to markets: the Treasury could buy back even more than USD 4 billion if necessary.
The timing is remarkable.
Yesterday's announcement initially pushed Treasury yields sharply lower and provided relief across financial markets. But the effect of the first intervention proved short-lived. Less than 24 hours later, yields were already moving higher again.
At the same time, another important milestone has been reached: US federal debt has surpassed USD 40 trillion, with the latest trillion-dollar increase occurring at an exceptionally rapid pace.
Against this backdrop, Bessent's second statement appears aimed at reassuring a bond market that remains increasingly concerned about the sustainability of the U.S. fiscal trajectory.
This time, however, the bond market barely reacted.
Markets:
Equities: Mostly lower
Bonds: yields rebound after yesterday’s drop - US 10y yield back at 4.70%, Japan 10y yield 2.85%
Commodities: Oil prices continue to rise, WTI around USD 87/barrel and Brent around USD 94/barrel
Precious metals prices higher, gold at USD 4’525/oz, silver moves towards USD 68/ozCurrencies: US dollar trades sideways, Japanese Yen falls again, USDJPY 159
Cryptos: jump after Trump urged Congress to pass legislation expected to support the sector - Bitcoin above USD 71k
Volatility: The VIX index slightly higher above 16 (still good opportunity for hedging)
My View: Yesterday’s doubling of Treasury buybacks was not enough to convince or calm the bond market. The initial effect proved short-lived, and yields quickly started moving higher again.
More importantly, investors now seem willing to push back against the Treasury, with yields continuing to rise even after Bessent’s second attempt to reassure markets within just 24 hours. Unlike yesterday, the bond market barely reacted this time.
That is potentially dangerous. When policymakers intervene verbally or through market-support measures and markets stop responding, credibility itself becomes part of the risk.
The Treasury can increase buybacks and provide temporary liquidity support, but it cannot eliminate the underlying problem: a rapidly growing debt burden and the enormous refinancing needs that come with it.
US federal debt now above USD 40 trillion. At the same time, commodity prices continue to rise, led by oil, adding renewed inflationary pressure. If higher input and energy costs feed through into inflation, this could put additional upward pressure on yields.
Bond investors are increasingly focused on the longer-term fiscal outlook, future Treasury issuance and the sustainability of the current debt trajectory.
If investors increasingly conclude that these measures merely address the symptoms rather than the cause, they may demand an even higher risk premium to hold long-duration US government debt.
I have highlighted the risks surrounding higher yields and rising debt levels repeatedly and again over the past several days. These developments are increasingly interconnected: higher debt requires more refinancing, higher yields make that refinancing more expensive, while renewed inflationary pressure makes it even harder for monetary policy to provide relief.
The most important development today is therefore not Bessent’s statement itself. It is the bond market’s lack of reaction to it.
Once the bond market starts questioning credibility, restoring it can become significantly more difficult, and considerably more expensive.
Become a member to access more valuable market updates like this
