Diverging Strategies in U.S. Treasury Market: Fed Gives Way to the Market, Treasury Steps Up Intervention

Warsh Focuses on Reducing Fed Influence, Prioritizing Market-Based Decisions

Bessent Responds Proactively with Expanded Long-Term Treasury Buybacks

U.S. National Debt Tops $40 Trillion... Persistent Burden from Elevated Long-Term Yields

Amid a surge in long-term U.S. Treasury yields, analysts have pointed out that the Federal Reserve (Fed) and the U.S. Department of the Treasury are exhibiting diverging approaches to managing the Treasury market. Fed Chair Kevin Warsh is emphasizing the importance of market-based price discovery and seeking to reduce intervention, while Secretary of the Treasury Scott Bessent is actively responding to rising long-term rates by expanding government bond buybacks.

Kevin Wash, Fed Chair_AP Yonhap News

According to Axios on August 20 (local time), Chair Warsh is moving to reduce the strong policy signals and direct influence that the Fed has long provided to financial markets, instead encouraging the market to set interest rates based on economic indicators and fundamentals. This approach aims to allow investors to judge economic conditions and determine prices on their own, rather than the Fed guiding the market excessively.

In contrast, the Treasury under Secretary Bessent has taken a more proactive stance in addressing the recent spike in long-term Treasury yields. The U.S. Department of the Treasury recently decided to double the maximum size of its liquidity support buybacks, targeting 10- to 20-year and 20- to 30-year Treasuries, from up to $2 billion per operation to at least $4 billion per operation.

This move came after the yield on the 30-year U.S. Treasury hit its highest level since 2007. Although the announcement of expanded buybacks temporarily drove down long-term yields, rates rebounded sharply within a day, and the market-stabilizing effect proved short-lived. In an interview with CNBC, Secretary Bessent stated that if necessary, the buyback amount could be increased to more than $4 billion per operation.

Axios noted that this aggressive Treasury response contrasts with Chair Warsh’s push for a “market-centric” approach. With the Fed working to reduce its influence in financial markets while the Treasury acts more forcefully, government impact on market rates is, in fact, increasing.

Scott Bessent, U.S. Secretary of Treasury (left), and Jamison Greer, Trade Representative, at a press conference. Photo by Yonhap News Agency

In particular, as the Trump administration views elevated borrowing costs as a key economic issue, further intervention by the Treasury is likely. Rising long-term Treasury yields increase not only the government’s interest payments but also funding costs for households with mortgages and businesses seeking loans.

However, some point out that Treasury buybacks alone are unlikely to sustain lower long-term rates. Structural factors such as the U.S.’s large fiscal deficit, surging bond issuance, and persistent inflation concerns continue to push long-term yields higher.

In fact, U.S. national debt surpassed $40 trillion for the first time ever this week. Should long-term yields remain elevated, maturing bonds will have to be refinanced at higher rates, further swelling government interest expenses, worsening the fiscal deficit, and triggering a vicious cycle of increased bond issuance.

Axios concluded that as Chair Warsh aims to restore market-based price setting, direct Treasury intervention is blurring the once clearer lines between the roles of the Fed and the Treasury, making the landscape for financial market management more complex than before.

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