Authors: Li Dan, Long Yue
On Thursday, August 20, US Eastern Time, US Treasury Secretary Beston intensively released policy signals, covering recent market hotspots from the US bond market to the Iran issue. Just the day before, the Treasury had announced it would double the scale of long-term Treasury buybacks, but the market rebound lasted less than 24 hours. Faced with rising yields again, Beston made it clear that the Treasury's intervention tools are far from exhausted and previewed a new fiscal consolidation measure aimed at addressing high borrowing costs over multiple years.
Beston stated that the Treasury's single long-term bond buyback scale could exceed $4 billion and emphasized "We have a large toolkit, so stay tuned." He also revealed that President Trump has tasked him and the OMB Director to lead a new fiscal consolidation plan, expected to be announced this weekend or early next week.
Beston also stated that current Treasury yields do not fully reflect US economic fundamentals, with liquidity for 30-year Treasuries being "very scarce"; regarding the US dollar, he reiterated the continuation of a strong dollar policy. On corporate financing, he believes AI investment expectations are making companies "almost insensitive" to yields when issuing corporate bonds, and that corporate investment will ultimately drive productivity growth.
On the Iran issue, according to CCTV, Beston revealed that a press conference will be held on August 24, next Monday, to detail the US action plan against Iran. Beston hinted that increased economic pressure could become a key means to avoid restarting large-scale military action. CCTV mentioned that he said, "We have asymmetric information. I'm not sure why the oil issue has become a focus. If we exert maximum economic pressure, it means a large-scale military conflict is less likely."
According to Xinhua News Agency, Beston stated that the Trump administration will increase economic pressure on Iran and threatened to impose "unprecedented economic isolation" measures on Iran. Beston also "called out" to all US allies, "We want to overthrow this regime," and warned to either stand with the US or be its enemy.
Beston also stated, he reiterated the strong dollar policy, saying the dollar is returning to levels seen two months ago and does not understand Thursday's rise in oil prices.
Buyback Boost Lasts Only a Day? Beston Calls "Anything Within 24 Hours Just Noise"
On Wednesday, August 19, the US Treasury announced it would at least double the scale of liquidity support buyback operations for 10- to 20-year and 20- to 30-year Treasuries, raising the single operation cap from $2 billion to at least $4 billion. The Treasury positioned this move as a measure to improve long-term Treasury market liquidity.
After this news, Treasury yields fell noticeably for a time, and global bond markets also received a temporary boost. However, this positive effect did not last long. On Thursday, US long-term Treasury yields rose again, with the 30-year yield rising about 7 basis points to 5.26%, returning to levels before the Treasury announced the expanded buyback scale; the 10-year yield also touched 4.71%.
Reuters reported that the relief from the Treasury's buyback measures might be short-lived, with the market still focused on the US's massive fiscal deficit, inflation expectations, and long-term bond supply pressure. TD Securities strategist Howard Du previously said the market is "not fully convinced" Beston can effectively suppress long-end yields. Franklin Templeton Fixed Income Head Andrew Canobi pointed out that multiple forces are jointly pushing yields higher and the yield curve steeper, including fiscal pressures in major developed economies and stubborn inflation.
Responding to such market volatility, Beston calmly replied in a CNBC interview: "Anything that happens within 24 hours is just noise." The Treasury's goal is to restore balance to a weak market and refocus investors on fundamentals, not chasing headlines in thin markets.
Buyback "Toolkit" Has No Upper Limit, Single Operation Could Far Exceed $4 Billion
When asked whether the Treasury would further intervene in the Treasury market, Beston sent a fairly clear signal.
He stated that the current Treasury market is a thinly traded sector, and the Treasury has ample tools in its toolkit, possessing a powerful set of instruments. "We have a large toolkit, so stay tuned. Part of the work lies in signaling—showing we believe yields do not reflect underlying fundamentals."
Beston particularly emphasized that the market may not be paying enough attention to the foundational factors of the US economy. He believes current Treasury yields do not reflect fundamentals, with liquidity for 30-year Treasuries especially scarce.
Regarding how large the buyback scale could be expanded, Beston did not set a clear upper limit, only stating it would depend on conditions.
This means that after the Treasury announced the expanded buyback scale, Beston did not signal "that's it," but explicitly retained the possibility of further action. Market reports show Beston even indicated the single buyback scale could exceed the previously announced $4 billion.
Beston also stated that the US could escape its debt burden through its own growth. In other words, while the Treasury uses market operations to ease long-term financing pressure, he still places the ultimate solution to US debt issues on economic growth and productivity improvement.
Fiscal Consolidation Plan Imminent, Beston: Announcement This Weekend or Early Next Week
Beyond market operations, Beston revealed a more structurally significant policy move: the Trump administration is about to launch a new round of fiscal consolidation plan.
"We are likely to announce measures to strengthen fiscal consolidation this weekend or early next week," Beston said in the CNBC interview. He separately told reporters that President Trump has personally tasked him and OMB Director Russ Vought to jointly lead this plan.
Beston did not specify what this new fiscal plan would involve. But he hinted it might include saving "hundreds of billions of dollars" through a fraud task force and cutting federal program funds "wasted" and allocated to states.
Notably, on Wednesday, US Treasury data showed total US public debt exceeded $40 trillion for the first time.
Regarding the actual effectiveness of this fiscal consolidation plan, the market is clearly divided. Evercore ISI Chief Strategist Sarah Bianchi wrote in a Thursday report: "We are skeptical the administration can take substantive action on the deficit. This week's surprise buyback announcement had a fleeting effect; we think any deficit-related announcement will be similarly limited."
However, Beston remains optimistic about the fiscal outlook. He stated the US fiscal deficit has "very likely" peaked. He attributed this to a rebound in tariff revenue—after the Supreme Court overturned most of Trump's tariff increase measures last year, the government is rebuilding the import tax system, and related tariff revenues are recovering.
"Putting all this together, the coming weeks and months will be very interesting, as we advance this plan." Beston said regarding the new fiscal plan.
Financing Long-Term Debt Buybacks with Short-Term Debt, Will the Fiscal Version of QT Work?
Another market focus regarding the Treasury's buyback operation is where the money comes from.
The Treasury's Wednesday statement did not specify the specific funding source for this expanded buyback operation. The Treasury typically relies on issuing short-term Treasury bills (one year or less) to manage financing needs fluctuations.
If the Treasury actually finances long-term Treasury buybacks by increasing short-term Treasury bill issuance, this operation could create an effect similar to a fiscal version of "Operation Twist" (QT)—altering the Treasury market's maturity structure by increasing short-term debt and reducing long-term debt supply.
The Financial Times previously cited market analysis discussing this possibility; Bloomberg also cited a Deutsche Bank strategist report describing this change as "QT is here."
But this does not mean the Treasury is implementing traditional quantitative easing.
Unlike the Fed, which can directly create bank reserves, the Treasury cannot create Treasury bills out of thin air and directly use them as payment for buying long-term Treasuries. If short-term debt issuance funds the buybacks, investors ultimately still need to purchase these short-term Treasury bills.
Therefore, some market participants believe the actual incremental demand for long-term assets from this operation could be quite limited. A Bloomberg commentary even noted that even if the buyback scale is further expanded, relative to the US's massive long-term debt stock and issuance scale, the new demand remains very limited, making it difficult to single-handedly change the supply-demand dynamics of long-end Treasuries.
This is also one of the key reasons the market quickly pushed long-term yields higher again on Thursday: the Treasury can influence market liquidity structure, but it's hard for buybacks alone to eliminate fiscal deficits, debt supply, and inflation risks.
AI Investment Makes Companies Less Sensitive to Financing Costs, Beston Optimistic About Productivity Growth
Besides government debt, Beston also discussed the rapidly expanding corporate bond issuance in recent years and the impact of AI investment on the bond market.
He stated that because companies believe they can achieve high returns from AI investments in the future, the corporate bond issuance he observes is "almost insensitive to yield."
Beston said it's interesting that companies issue long-term bonds; if he were a corporate executive, he would pay more attention to the middle of the yield curve, the so-called "belly."
In his view, corporate investment will ultimately promote productivity growth, so many companies' current financing behavior will not change significantly due to short-term yield fluctuations.
This judgment also corresponds to another pressure facing the bond market: AI infrastructure construction requires massive capital expenditure, with tech companies and related supply chain companies continuously financing through the bond market, increasing supply in the credit bond market.
But Beston focuses more on the potential long-term economic returns from AI investment. In his logic, if AI investment can truly translate into productivity gains and economic growth, then the relatively high financing costs companies bear now may ultimately be covered by higher investment returns.
Beston Reiterates Strong Dollar Policy, Says Dollar Returning to Levels Two Months Ago
Regarding the US dollar, Beston's signals were relatively clear.
He stated that the dollar has been very stable. The dollar is returning to levels seen two months ago. When asked about the dollar weakening after Wednesday's Treasury announcement to expand buybacks, Beston reiterated: "We will continue to maintain a strong dollar policy."
This statement came after the Treasury expanded long-term bond buybacks. The market had previously worried that the Treasury directly intervening in the long-term Treasury market might strengthen investor concerns about US policy intervention and dollar asset risks. Bloomberg reported that some investors even believed the dollar could become a potential "victim" of this bond market intervention.
But Beston clearly wants to convey the opposite message to the market: the Treasury's market operations do not mean the US is abandoning its strong dollar policy.
Trump Administration Shifts to Economic Pressure, Iran Issue Press Conference Next Monday
When discussing the Iran issue, Beston released another important policy signal.
According to Xinhua News Agency, Beston threatened economic isolation against Iran this Wednesday, stating in an NBC interview, "This will be the largest, most coordinated economic isolation in history."
He stated a press conference would be held next Monday to discuss US actions against Iran and said the US would impose the "toughest ever" sanctions on Iran.
The US government is currently trying to force Iran to make concessions by further strengthening economic, financial, and trade pressure. The day before Beston's remarks, Xinhua mentioned that President Trump posted on social media on the 19th, saying Iran missed a good opportunity to reach a deal with the US, and he announced "the most devastating economic actions ever taken against a country" on Iran.
Particularly noteworthy in Beston's latest statement is that, as Xinhua mentioned, Beston said the Trump administration's plan to cripple Iran's economy might make the US no longer need to launch large-scale military action against Iran. He said:
"If we exert maximum economic pressure, it means a large-scale military conflict is less likely."
That is, the Trump administration's pressure tools against Iran may be further tilting from military means toward economic and financial sanctions.
Xinhua cited US media analysis pointing out that the US launching an "economic war" against Iran is not without difficulty. Iran has long been under US sanctions and has developed some resilience to related pressures, and the Iran issue is closely related to global energy supply and Strait of Hormuz shipping security, so the US escalating economic sanctions could also have complex spillover effects.
Beston announcing further details next Monday also means the market may soon get more information about sanction scope, targets, and implementation methods.
Sudden Oil Price Rise Puzzles Beston, Says US Actions Will Push Prices Down
Notably, as the US prepares to further exert economic pressure on Iran, Beston himself was surprised by Thursday's rise in oil prices.
"We saw a big rise in oil prices today, and I really don't understand it," Beston said.
He also said the upcoming US economic actions would cause oil prices to "fall back faster."
Oil prices have become a key variable US policymakers must face. Rising crude oil prices not only increase energy costs for US consumers and businesses but could also rekindle inflation expectations, further raising long-term Treasury yields.
This directly relates to Beston's current efforts to stabilize the long-term Treasury market: if the Iran situation leads to persistent energy supply risks, rising oil prices and inflation expectations could offset part of the Treasury buyback operation's effect on long-end yields.
Therefore, Beston, on one hand, emphasizes the Treasury has enough "toolkit" for the Treasury market, and on the other hand, tries to suppress Iran-related energy risks through economic means, which actually follows a common policy logic—minimizing external shocks to US long-term financing costs.
Now, the market has given initial feedback with Thursday's 30-year yield rising back to 5.26%: the Treasury's market operations can quickly change short-term trading sentiment, but to truly reverse long-term yield trends ultimately depends on broader fundamental factors like fiscal deficits, inflation, economic growth, energy prices, and US debt supply-demand.
