Treasury Buybacks Barely Dent Rising Yields as Attention Turns to Powell at Jackson Hole

U.S. Treasury Secretary Scott Bessent moved to calm the bond market by proposing a sharp increase in long-dated Treasury buybacks, aiming to counter stubbornly higher long-term yields. Markets reacted quickly, but the impact faded within hours as yields climbed back, leaving the week little changed. Bessent later argued the market had "overreacted," pointing to the Treasury's "powerful toolbox." Trading across other assets told a different story: the dollar fell nearly 1% on the week, gold pushed above $4,600, and Bitcoin surged more than 25%. Nomura's Charlie McElligott described the pattern as a "safety valve"—efforts to stabilize long-end rates channeling investor anxiety into other hedges. With the Treasury's move failing to meaningfully reset the market, the spotlight shifts to Federal Reserve Chair Jerome Powell, who is scheduled to speak Friday at the Jackson Hole Economic Policy Symposium. Since taking office in May, Powell has offered limited forward guidance, and his last post-FOMC remarks helped trigger a sharp bond selloff, leaving investors highly sensitive to both his message and delivery. According to Bloomberg, traders are focused on the Fed's reaction function as inflation runs above the 2% target and fiscal conditions deteriorate. TD Securities U.S. rates strategist Molly Brooks warned that a "more of the same" message could disappoint markets and deepen the long-end selling already underway. HSBC rates strategist Dhiraj Narula said clearer framing of prospective inflation pressures could help reduce the term premium tied to uncertainty. Bloomberg Markets Live strategist Michael Ball argued the Treasury can adjust debt maturity profiles, but only the Fed can anchor inflation expectations. He said Powell needs to reinforce that the 2% target remains achievable and signal willingness to act even if persistent inflation creates political friction. Why the Treasury's buybacks aren't moving the needle Academy Securities' Peter Tchir noted that the U.S. government has roughly $7.5 trillion in short-term bills outstanding and $21.7 trillion in coupon-bearing bonds. Under the plan, buyback operations of at least $4 billion, occurring close to weekly, double the prior pace from $2 billion to $4 billion. In his view, the headline increase sounds large but is too small to sustainably shift the market. Tchir stressed the program is not quantitative easing: it does not create new money and amounts to reshuffling issuance rather than expanding liquidity. He said the rally in gold and the weaker dollar reflect an overstated "currency devaluation" narrative more than any true Treasury-driven monetary expansion. A separate data point underscores how far markets are from a purely private clearing mechanism: the Fed now holds more than 50% of all Treasuries maturing in the 10-to-15-year sector, and its share of long-term bond holdings is approaching 20%. The Fed also holds nearly $426 billion of coupon-bearing bonds maturing within one year, with an average coupon of about 2.9%, against an effective federal funds rate of 3.63%—a negative carry that implies ongoing losses on the spread. Operation Twist returns to the conversation That backdrop has revived talk of a dormant tool: "Operation Twist." The idea is straightforward. If the Fed sold its roughly $426 billion in short-maturity holdings and redeployed the proceeds into longer-dated bonds (20 years and beyond), it would likely take an upfront mark-to-market hit, but could improve carry (about 5.25% holding yield versus 3.63% funding cost). More importantly, such purchases could absorb more than 15% of the outstanding supply of bonds with maturities above 20 years, putting direct downward pressure on long-term yields. From Powell's standpoint, a twist would not be QE because it would not increase the total par value of securities on the Fed's balance sheet, making it easier to defend politically. Tchir argues that if the White House genuinely wants lower long-term yields, it will need more than limited, Treasury-led maneuvers and must press for a full-scale Fed twist. Ball similarly described the current setup as drifting toward a "lightweight twist": the Treasury buys back longer-duration debt and leans toward shorter maturities and shorter coupons, while the Fed manages reserves by buying at the front end, absorbing supply without expanding the balance sheet. That mix carries tension. A greater reliance on short-term funding increases the Treasury's exposure to policy rates, causing interest costs to reset faster if the Fed must tighten to fight inflation. If the Fed hesitates out of concern for fiscal costs, markets may punish perceived losses of independence through higher term premiums. Ball warned the choice is stark: either the Fed reinforces the Treasury's effort, or the intervention risks failing—and failed interventions can be more damaging than doing nothing. Near-term catalysts: July PCE and a narrowing policy window Before Jackson Hole, investors will parse the July Personal Consumption Expenditures (PCE) index due Wednesday. Bloomberg reports that over the past month, inflation, jobs, and retail sales have generally met or undershot expectations, leading traders to trim expectations for near-term rate hikes. A similarly soft PCE print could give Powell more room. Bloomberg also flagged a tightening political backdrop: midterm-election pressure, combined with a Bureau of Economic Analysis update to PCE methodology at the end of September, could make any post-September FOMC tightening steps more politically fraught. The 5% line in the sand The Wall Street Journal cited Bank of America strategist Michael Hartnett, who views a 5% yield on the 30-year Treasury as a key threshold. If yields fail to move below that level, he expects intensifying pressure on the dollar and highly leveraged areas of the market, including AI hyperscale computing companies and private credit. Last Friday, Bridgewater founder Ray Dalio warned investors to cut bond exposure and hold gold and some Bitcoin as protection against a potential U.S. debt crisis. Bloomberg added that investor focus on fiscal risks is rising as the Iran conflict escalates. At the same time, heavy bond issuance by AI-related companies is competing with Treasuries for the same capital pool. Demand from foreign buyers is also becoming increasingly price-sensitive, with less tolerance for the current policy trajectory.