Bessent's attempt to rescue the bond market ended up boosting gold and Bitcoin—now, everyone is waiting for Wash.
Last week, U.S. Treasury Secretary Bessent announced plans to at least double the size of long-term U.S. Treasury buybacks, aiming to curb the persistently rising long-end yields. The effect was immediate but lasted less than a day—yields subsequently returned to their highs, ending the week roughly flat.
Afterwards, Bessent described the market reaction as "a bit overdone" in an interview, emphasizing that the Treasury has a "robust toolkit." However, the market responded differently in action: the dollar fell nearly 1% for the week, gold broke above $4,600, and Bitcoin surged over 25% weekly.
Nomura's Charlie McElligott characterized this combination as a "pressure release valve"—authorities' attempt to stabilize long-end rates led to market anxiety venting elsewhere.
This Week's Focus: Can Wash Provide Answers?
The baton has now been passed to Federal Reserve Chair Wash. He is scheduled to speak at the Jackson Hole Economic Policy Symposium this Friday.
Since taking office in May this year, Wash has offered almost no forward guidance. His remarks following the last FOMC meeting directly triggered a bond market sell-off—the market is extremely sensitive to what he says and how he says it.
According to Bloomberg, traders most want to know: In the face of inflation stubbornly above the 2% target and worsening fiscal conditions, what exactly is the Fed's policy reaction function.
TD Securities U.S. rates strategist Molly Brooks warned: "If it's the same old story, I think the market will be disappointed, and that could exacerbate the long-end selling we've already seen."
HSBC rates strategist Dhiraj Narula believes, Wash has an opportunity to soothe the market with his stance: "If Chair Wash can offer some characterization of underlying inflationary pressures, in our view, that alone could provide some basis for reducing uncertainty-related term premiums."
Bloomberg Markets Live strategist Michael Ball stated: Bessent can adjust the debt maturity structure, but only the Fed can anchor inflation expectations. Wash's Jackson Hole speech must reaffirm that the 2% target is still achievable and clearly state that—if inflation persists, policy action will be taken, even if it creates friction with the administration.
Why Wasn't Bessent's Operation Enough?
Peter Tchir of Academy Securities points out that the U.S. government currently has $7.5 trillion in short-term Treasury bills (T-bills) and $21.7 trillion in coupon-bearing debt outstanding. Bessent's each buyback operation is "at least $4 billion," with a frequency close to weekly—doubling from $2 billion to $4 billion sounds significant, but it has fundamentally failed to sustainably move the market.
Tchir judges that this is not QE (quantitative easing). Bessent's operations essentially just "rearrange deck chairs," not truly creating money. The market reaction of gold rising and the dollar falling reflects more an over-interpretation of the "currency debasement" narrative, rather than the Treasury genuinely expanding the money supply.
There is also a lesser-known but crucial data point: the Fed currently holds over 50% of all U.S. Treasuries maturing in 10 to 15 years. This is quite far from a "free market." Meanwhile, the Fed's holdings of long-term bonds also approach 20%.
More paradoxically, the Fed also holds nearly $426 billion in coupon-bearing bonds maturing within one year, with an average coupon of just 2.9%, while the current federal funds effective rate is 3.63%—the Fed is sustaining negative carry losses on this position.
"Operation Twist": Can the Fed Rescue What Bessent Couldn't?
This backdrop has reignited market chatter about a long-dormant tool: the Fed version of "Operation Twist."
The logic is not complicated: If the Fed sells that $426 billion in short-term bonds and uses the proceeds to buy an equivalent nominal amount of bonds with 20+ years to maturity, it would incur an upfront book loss but could earn a significant positive carry (roughly 5.25% holding yield vs. 3.63% funding cost). More importantly, this would absorb over 15% of the outstanding supply of 20+ year bonds, effectively pushing down long-end yields.
From Wash's perspective, "Operation Twist" doesn't count as QE because it doesn't change the total nominal size of the Fed's bond holdings. This is more politically palatable. Tchir's judgment is: If the White House truly wants long-end yields to fall, it must abandon the "small-scale tinkering" within Bessent's control and instead push the Fed to fully engage in an Operation Twist.
Bloomberg's analyst Ball holds a similar view: Bessent's plan increasingly resembles a "lightweight Operation Twist"—the Treasury exits long-duration debt via buybacks, pivoting to bills and short coupons; the Fed then absorbs front-end supply by purchasing bills through reserve management, without expanding its balance sheet. However, this combined approach has inherent contradictions: the higher the share of short-term financing, the greater the Treasury's exposure to policy rates. If inflation forces the Fed to hike rates, interest costs will reset at a faster pace; and if the Fed hesitates due to concerns about fiscal costs, the market will punish its independence with higher term premiums.
Therefore, either the Fed steps in to support Bessent, or this intervention will end in failure—and a failed intervention is often more damaging than no intervention at all.
Data Window: July PCE Paves the Way on Wednesday
Ahead of the Jackson Hole speech, the market also faces an important data point—the release of the July Personal Consumption Expenditures (PCE) index on Wednesday.
According to Bloomberg, over the past month, inflation, employment, and retail sales data have all met or fallen below expectations, leading traders to dial back near-term rate hike expectations. If the PCE data continues this trend, it may provide some cushioning space for Wash's remarks.
However, the time window is narrowing. Bloomberg analysis points out that midterm election political pressures, coupled with the Bureau of Economic Analysis' plan to update PCE statistical methodology by the end of September, could make any tightening moves after the September FOMC meeting appear increasingly complex from a political perception standpoint.
5% is Key, Sustainability of Debasement Trade in Doubt
Wall Street News writes that BofA strategist Michael Hartnett views the 30-year Treasury yield of 5% as a critical line, believing failure to break below it will intensify pressure on the dollar and highly leveraged sectors—including AI hyperscale computing firms and private credit.
Bridgewater founder Ray Dalio issued a warning last Friday, advising investors to cut bond exposure and hold gold and some Bitcoin to hedge against a potential U.S. debt crisis.
This pressure is not without basis. Bloomberg notes, as the Iran conflict continues to simmer, fiscal prospects are increasingly in the market's focus; simultaneously, a surge in AI-related corporate bond issuance is competing for the same pool of capital as U.S. Treasuries; foreign investor demand for U.S. debt is also becoming more "price sensitive," with diminishing tolerance for current policy directions.
