In the 2013 film Captain Phillips, after Somali pirates take over an American ship, their leader declares, "I am the captain now." In a strikingly similar tone, Treasury Secretary Scott Bessent recently dared bond and currency traders to bet against him, stating emphatically, "I am the house now." The pirates were up against the US military. Bessent faces the US bond market.
Bessent's fixation is the 10-year US Treasury yield — a major benchmark for consumer and corporate borrowing, but especially mortgages. We currently have a home affordability crisis, and higher mortgage rates only exacerbate the problem. On top of that, these are also rates the US government has to pay on its borrowing, which has recently reached $40 trillion.
What is he actually doing?
He had the Treasury sell euros — not dollars — to buy yen, much to the surprise of his European counterparts. The yen has recently weakened significantly, and Japan is the largest foreign holder of US Treasuries. So to prevent Japan from selling US Treasuries to support its own currency, Bessent executed this maneuver, essentially sacrificing the euro for US Treasuries.
He more than tripled the Treasury's long-dated bond buybacks, from a normal size of around $2 billion per operation to $6 billion this week, with the standing size going forward set at $4 billion. These buybacks are supposed to be a technical, operational cleanup with primary dealers who facilitate treasury issuance — not a backdoor way to influence monetary policy, which is controlled by the Fed.
He has threatened to finance even more long-dated buybacks by issuing more short-term Treasury bills — a maneuver often referred to as a "twist."
These actions are surprising for any Treasury Secretary, but especially for him — he built his career taking the other side of this exact bet. In 1992, Bessent famously made a fortune (for him and George Soros) betting against the British pound. He knew the UK was defending a price the market didn't believe in. Sound familiar? On top of that, in 2024, he criticized his predecessor, Janet Yellen, for utilizing a similar strategy of leaning on short-term bill issuance to ease pressure on longer-dated bond yields.
Bessent is extremely smart. And he has been extraordinarily successful — as a trader. But the $30 trillion US Treasury market doesn't care how smart you are, even if you are the Treasury Secretary. So even after all his maneuvering, the 10-year yield has pushed to its highest level since 2023, hovering just under 5%.
Bottom line
Inflation is still too high, and the US is carrying too much debt. Bessent didn't create either problem. But his maneuvering can, at best, only delay the reckoning. At worst, it chips away at the market's trust in the US Treasury as an institution.