US Treasury Secretary Scott Bessent, who upon taking office sharply criticized his predecessor's attempts to "reshape" the world's largest bond market, has now made a similar move of his own. Last Thursday, Bessent announced plans to repurchase a batch of long-dated Treasuries while increasing issuance of short-term securities, implementing what he calls a "Treasury version of Operation Twist"—a nod to the famous Federal Reserve program from the 1960s. Bessent believes current long-term yields have deviated from their "equilibrium" level.

The Operation Twist approach did give the Treasury market a one-day jolt—long-dated yields fell sharply on Wednesday following the announcement, but quickly rebounded. The 10-year benchmark yield, which Bessent watches most closely, closed last week at 4.73%, near its highest level since he took office. This suggests the Treasury Secretary's efforts to lower borrowing costs, especially with the November midterm elections approaching, are encountering upward pressures far beyond his control.

These pressures include record levels of debt across the US (with one metric this week showing total Treasury debt surpassing $40 trillion) and the entire developed world; a surge in corporate bond issuance driven by the AI boom; inflation rebounding from energy market turmoil following Trump's strike on Iran; and additional uncertainty stemming from the unclear policy path of Federal Reserve Chair Kevin Warsh.

"Any path that can sustainably ease long-end yields must go through areas this administration is unwilling to touch," noted Matt King, founder of Satori Insights. He stated that shrinking the US budget deficit, a stock market correction, or a cooling of AI investment would be what could actually bring long-term yields down.

On the question of "returning to normal," some market participants don't believe yields are actually "deviating." "I think we've returned to normal interest rate levels—4% to 5% is the normal range," said Edward Yardeni, the man who coined the term "bond vigilantes," just an hour before Bessent made his move. While the Treasury claims its intervention aims to support liquidity, JPMorgan's rates strategy team noted in a Thursday report that "market functioning has improved significantly this year."

Bessent's yield curve control vision—influencing rates across different maturities—extends beyond Treasuries to include the so-called "mega-cap companies" that are heavily borrowing to invest in AI. Earlier this month, Alphabet Inc. issued bonds with maturities of up to 40 years. The Treasury Secretary said this week that these investments will ultimately pay off in the form of faster, non-inflationary economic growth, but "right now they're creating short-term competition for capital." He suggested that if he were in a CFO position, he "would consider issuing more 'belly' duration bonds"—referring to 5-year maturities.

This apparent interventionist intent has even sparked market discussion about whether a "Bessent put" exists—a modern echo of the old Greenspan put. Chris Turner, global head of markets at ING Groep NV, also used this phrase this week, though many doubt whether Bessent truly has the power to influence yields. The Treasury did not respond to requests for comment on Bessent's bond market intervention measures.

Facing rising yields, Bessent claims investors are being guided by "misinformation," while he himself holds an "asymmetric" information advantage. "There's a lot of misleading information about the deficit situation," he said, pledging to redirect market attention to what he calls Trump's fiscal consolidation plan. Strategist Alyce Andres commented: "Bessent cannot control inflation expectations, nor can he forcibly lower nominal long-term rates, so he chose to reduce the circulation of some less-liquid long-duration securities through repurchases. But the latest plan must convince investors that buybacks are a bridge to a better debt trajectory, not a means of forcibly suppressing yields without addressing the deficit."

Bessent said that in the coming days he will work with White House budget director Russ Vought to "examine what can be done from both the revenue and spending sides," hinting at cracking down on fraud and reducing transfer payments to state governments. The "Department of Government Efficiency" led by Musk attempted similar measures last year but failed to achieve its spending reduction targets. "We are skeptical that the government can take substantive action on the deficit issue at this time," wrote Sarah Bianchi, chief strategist at Evercore ISI, in a research note.

Beyond Treasury interest payments (now exceeding $1 trillion annually), Social Security, Medicare, and Medicaid spending are the main drivers of this year's fiscal deficit, which is projected to be about 6% of GDP. Bianchi noted that reforming these entitlement programs is "absolutely impossible in the short term," and even less likely if Democrats win at least one chamber of Congress after the midterm elections.

What is truly within Bessent's purview is adjusting debt issuance and repurchase strategies. Prior to this week's operation, the Treasury had already adjusted its broader issuance forward guidance two weeks ago, which analysts said opened the door to potentially reducing issuance of the longest-dated—and highest-yielding—securities. Such moves resemble the debt issuance strategy of the Yellen era that Bessent once criticized, and also suggest an implicit divergence between him and Warsh.

Warsh, far from echoing the view that yields have deviated from equilibrium, has nearly endorsed their rise. On July 29, he said that although the Fed has not tightened policy despite high inflation, "the market has already done a lot of work," and "market prices will continue to react in the direction and magnitude they see fit." Warsh himself is about to have a key communications moment—speaking Friday at the Kansas City Fed's Jackson Hole symposium. Investors will watch whether he uses the occasion to repair credibility damaged by last month's poorly received press conference, when Warsh failed to provide a compelling rationale for holding rates steady, avoided any hint of possible rate hikes in coming months, and said the Fed's inflation target could be adjusted in January.

"We think Bessent's actions put Warsh in an awkward position," said Mark Dowding, chief investment officer of fixed income at RBC BlueBay Asset Management. George Goncalves, head of US macro strategy at MUFG, said, "If Warsh can truly articulate how they will provide quantitative metrics, how they will use information, and give an action plan for the next three to six months, that would be a real reversal of the script. At least let the market know what to focus on."

Warsh wants to reshape the Fed's balance sheet (currently holding approximately $4.54 trillion in Treasuries) and has mentioned a new "Fed-Treasury accord," though without detailing its contents. The original 1951 accord significantly limited the Fed's influence in the bond market and ended yield curve control strategies. If current US policymakers genuinely want to lower borrowing costs, they may need to reverse course.

"Buybacks are more about signaling than substance," and even expanding their scale would struggle to change market dynamics, said Rebecca Patterson, a former senior figure at JPMorgan and Bridgewater who now serves as a senior fellow at the Council on Foreign Relations. "A more effective and sustainable policy path would be through Fed quantitative easing." Before taking office, Bessent called sustained quantitative easing—Fed bond purchases—a "permanent drug regimen." Warsh opposed QE when he served as a Fed governor in the early 2010s and has since been one of its sharpest critics. If the two do not make such a major policy shift, the yield curve will remain driven by investors.

"The economy is resilient, and global competition for capital is intensifying," said Priya Misra, portfolio manager at JPMorgan Asset Management. "Higher rates are logical."