Two Levers

Treasury Secretary Scott Bessent has been busy this month — doubling down on Treasury bond buybacks and coordinating with Tokyo to defend the yen. Neither effort is working the way markets initially hoped, and the reason is the same in both cases: he’s fighting balance-sheet-sized problems with market-operation-sized tools. 

The Treasury just expanded its buyback program, targeting $6 billion in debt maturing in 10 to 20 years, on top of an earlier plan to more than double the typical buyback size. The 10-year yield responded by climbing to 4.86%, its highest since October 2023, with the 30-year pushing above 5.3% (the 10-year has since briefly touched 5%). 

Market operations and buybacks don’t shrink the amount of debt the government needs to sell, they just reshuffle its maturity, swapping some long bonds for bills elsewhere on the curve. Meanwhile the deficit keeps running near $2 trillion a year against roughly $40 trillion in total debt, so the supply of new bonds Treasury must auction keeps growing regardless of what it buys back. At the same time, the buyer base has shifted: foreign central banks that used to soak up Treasuries reliably have been drifting toward gold, and price-sensitive hedge funds have taken a bigger share of the market, which makes yields more volatile and more resistant to jawboning. It appears investors are (finally) pricing the deficit trajectory, not the business cycle. A few billion dollars of buybacks a month can’t out-muscle that sentiment. Treasury cannot conduct yield curve control, only the Federal Reserve can, with its ability to print unlimited money (just look at the size of the Fed’s balance sheet for confirmation). 

In late July, the yen hit a 40-year low near ¥164, prompting a rare joint intervention: Japan sold an estimated $53–59 billion to buy yen, with the New York Fed and US Treasury pitching in alongside. It worked immediately — the yen snapped back to around ¥155 — but within two weeks it had drifted back out to ¥159 as the rally faded. 

Intervention can cap a currency move for a few days or weeks, but it can’t reverse the interest-rate gap between the US and Japan. The Bank of Japan has been reluctant to raise rates aggressively even as it now signals hikes are “on the table” at every meeting, in part because Japan is sitting on debt north of 200% of GDP and higher rates make servicing it painful. Until that gap closes meaningfully, the carry trade — borrow cheap yen, buy higher-yielding dollar assets — keeps pulling money out of Japan, and no amount of dollar-selling changes the math for very long. 

Both cases boil down to the same constraint: Bessent can move prices at the margin, briefly, but he can’t override the fiscal and monetary fundamentals that set the trend — Washington’s deficit path on one side, Tokyo’s rate differential and debt load on the other. Market operations can smooth volatility; they can’t substitute for the harder political and policy choices (spending restraint in the US, faster normalization in Japan) that would change the long-term trajectory. 

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