Treasury’s Bond-Buyback Push Meets Fed Skepticism as Yields Top 5%

On September 16, U.S. Treasury Secretary Scott Bessent highlighted a surge in government-bond yields, noting the 10-year Treasury note had risen above 5 %, its highest level since 2007. The Treasury’s recent expansion of a debt-buyback program coincided with Bessent’s appearance before Congress, where he attributed the yield rise to “global issues.” Meanwhile, the Federal Reserve is expected to conclude its two-day policy meeting by raising the target federal-funds rate to 3.75 %–4.00 % in response to persistent inflation pressures.

Reuters

Analysts warn that sustained high yields increase borrowing costs for both the government and the private sector. A Deutsche Bank poll released earlier in the week indicated investors anticipate a short-term yield lift from the rate hike, with longer-dated yields projected to rise further if the Fed holds rates steady. Historically, the Fed has intervened in bond markets during crises—most notably the 2007-2009 financial crisis and the COVID-19 pandemic—but the 1951 Treasury-Fed Accord formally separated debt management from monetary policy.

Reuters

Fed Chairman Kevin Warsh emphasized the importance of the Fed’s credibility, stating that any large-scale Treasury-directed bond purchases would clash with the central bank’s inflation-targeting mandate. Treasury officials, including Bessent, defended the buyback expansion as a success in curbing market dislocations.

Reuters

• “One of the Fed's unwritten mandates is financial conditions,” — Rick Rieder, BlackRock Inc's chief bond investment manager

Reuters