The U.S. Treasury Department’s announcement to significantly expand the scale of long-term Treasury bond repurchases has recently become a core variable in the global bond market. Long-term yields fell rapidly in the early days after the news was announced, but all losses were recovered in just one trading day. The market view quickly shifted from "policy support" to "limited drug effect", with sharp differences. In the view of the Wmax macro research team, current market discussions generally remain on the superficial judgment of "whether repurchases can suppress yields." It has neither identified the fundamental change in the intervention paradigm of the Ministry of Finance behind this operation, nor clarified the boundary between short-term tactical intervention and long-term fundamental trends. Wmax has formed a more layered research and judgment based on the systematic dismantling of the U.S. fiscal framework, Treasury Department behavior model and long-term interest rate driving logic.

Nature of operation: hedge fund-style tactics, breaking the traditional operating framework of the Ministry of Finance

This time, the Ministry of Finance made it clear that from September 9 to November 4, it will increase the maximum single repurchase scale of 10-30-year long-term government bonds from US$2 billion to at least US$4 billion. Calculated at this pace, the annualized repurchase scale is approximately US$128 billion, which is close to 30% of the expected issuance of government bonds of corresponding maturity, but only accounts for 2.4% of the existing debt in the market. From the perspective of short-term market effects, the 30-year U.S. bond yield fell by nearly 10 basis points within hours after the news was announced, and U.S. stocks rose simultaneously. The short-term impact of the policy signal was very significant; however, on the second trading day, the 10-year and 30-year yields completely recovered their losses and returned to their previous high range.

Wmax believes that the core significance of this operation is not the scale itself, but that it marks a paradigm shift in the thinking of the U.S. Treasury Department’s debt management. For a long time, the U.S. Department of the Treasury has always adhered to the principle of "regular and predictable" debt issuance and avoided actively adjusting operating strategies to interfere with market pricing. After Bessent took office, his trading style from a hedge fund background has gradually penetrated into the Treasury's operating logic - from adjusting the debt issuance structure during the year and promoting the relaxation of regulatory rules, to two direct interventions in the foreign exchange market, to this unexpected expansion of repurchases. Bessent has become one of the most proactive Treasury ministers in the 21st century to intervene in the market.

This operating logic is similar to the centralized signal trading of hedge funds: through actions that exceed market expectations, it quickly reverses the market's unilateral expectations and creates a two-way risk of shorting U.S. debt. Some views in the market interpreted this as a "direct reversal of the interest rate trend," clearly overestimating the weight of a single operation; but others completely denied its significance and ignored the changes in pricing rules brought about by the increased willingness of the Ministry of Finance to proactively intervene.

The inevitable short-term effects of drugs: the core contradiction of rising long-term yields has not been touched

The repurchase effect only lasts for one trading day, which seems to exceed market expectations, but is actually in line with the underlying logic. Wmax has always emphasized that the rise in long-term U.S. bond yields is the result of the resonance of multiple structural factors, and repurchase operations at the liquidity level alone cannot resolve the fundamental pressure. We have sorted out the four core factors driving the current rise in long-term interest rates:

Rigid pressure on financial fundamentals:The current U.S. fiscal deficit accounts for nearly 6% of GDP, about three times the average level from the post-World War II period to the pre-epidemic period; the total federal debt has exceeded the $40 trillion mark. At the same time, expenditures such as social security, medical insurance, and debt interest are rigid, defense expenditures are expected to expand, and there are discussions on superimposed tax reduction plans. The medium-term trend of fiscal expansion has not been reversed. This is the fundamental source of long-end supply pressure.

Inflation and the pick-up in term premia:Tensions in the Middle East have pushed up international oil prices, concerns about a rebound in inflation have rekindled, and the term premium required by investors to hold long-term bonds continues to rise. Bessant attributed energy inflation to temporary factors, but the market did not fully agree with this judgment.

Deep changes in supply and demand structure:On the one hand, the expansion of the AI ​​industry has driven the issuance of corporate bonds, creating a diversion of funds from government bonds; on the other hand, global central banks have continued to shrink their balance sheets, and the absorptive capacity of traditional long-term U.S. debt buyers has reached its upper limit. Trading funds such as leveraged hedge funds have gradually become marginal pricing entities, causing market stability to decline and volatility to amplify.

Fiscal resonance in advanced economies around the world:Major developed economies are generally facing the dual test of fiscal pressure and stubborn inflation. The simultaneous rise of global long-term interest rates is not a phenomenon unique to the United States.

As long as the underlying logic above has not changed, buybacks can only marginally improve the liquidity of the long-term bond market and slow down the upward slope of yields, but cannot reverse the long-term trend. It is inevitable that the market will return to fundamental pricing the next day.

The Boundaries of the Policy Toolbox: The Real Position of the “Besant Put”

In response to this operation, the market derived the term "Bessent put option", which believes that the Treasury Department will flexibly intervene to provide a floor for U.S. bond prices and limit the upside of yields. Wmax believes that this positioning needs to be clearly defined: it is an effective short-term expectation management tool, but it is by no means a signal of trend reversal. Looking at the subsequent optional policy paths, the Ministry of Finance still has three types of tools, but each has obvious constraints:

Continue to expand the scale of repurchases:If the initial operations achieve the expected results, the Ministry of Finance can further increase the amount and frequency of repurchases to strengthen the signaling effect. However, the scale of repurchase funds is extremely small compared to the existing market of tens of trillions of dollars, and it is impossible to continue to rely on buying to directly suppress interest rates.

Adjust the debt maturity structure:By reducing the issuance of long-term treasury bonds and increasing the supply of short-term treasury bills, long-term pressure will be alleviated from the supply side. However, this strategy is exactly what Bessant previously criticized the Biden administration, and excessive reliance on short-term debt will increase the risk of debt rollover, and may instead be interpreted by the market as a signal of fiscal pressure.

Fiscal consolidation plan:Bessant revealed that the government is about to announce a new fiscal consolidation plan. The core directions include combating expenditure fraud, reviewing state-level project funds, and relying on tariff revenue to improve the fiscal situation. However, the market generally believes that such measures can only improve the deficit to a limited extent and are difficult to substantially repair fiscal fundamentals.

Bessent emphasized that "buybacks are aimed at improving market liquidity, not controlling the yield curve." Behind this official statement is the balance between policy intentions and realistic constraints. Its real goal is to suppress the market's unilateral short-selling sentiment on long-term bonds by releasing a signal that policy tools are sufficient, and to prevent the rapid rise in yields from impacting the financing costs of entities such as mortgages.

Long-term game pattern: two-way pull between policy bottom line and fundamentals

The current bond market has entered a typical game stage of "policy support + fundamental pressure". Just as the market summarizes the law: there are risks in confronting the official departments with rule-making power, but weak fiscal fundamentals are also an unavoidable reality. Global capital will continue to test the official policy bottom line, while the Ministry of Finance will use flexible operations to smooth the pace of rising interest rates. The pull between the two parties will become the main tone of the U.S. bond market in the coming period. For the allocation of large categories of assets, this pattern brings three clear implications:
First, long-term U.S. bond yields are unlikely to trend downward, and high fluctuations will be the norm. Policy intervention will curb the unilateral rapid upward slope, but the underlying pressure on finance and inflation determines that it is difficult for the interest rate center to return to the low level in the past.
Second, asset allocation logic will continue to be reconstructed. In a high interest rate environment, funds will gradually flow to sovereign bonds and high-dividend assets in economies with healthier fiscal conditions, which will continue to suppress purely valuation-driven growth assets.
Third, the U.S. dollar has both long-term support and pressure. Bessant still publicly adheres to the strong dollar policy, but the long-term drag on the credit of the dollar from the expansion of fiscal deficits and rising debt scale is always an underlying risk that cannot be ignored.

Overall, the current market can easily fall into the binary extreme narrative of "turning to a bull market when policies are launched, and turning to collapse when the effect fades." The essence is that it fails to distinguish between short-term tactical operations and long-term trend logic. Wmax always believes that understanding Besant's intervention style and tool boundaries is more valuable than arguing about the rise and fall of a single operation. In the future, we will continue to track the specific details of the fiscal consolidation plan, the actual implementation of repurchase operations, and the policy coordination rhythm of the Federal Reserve and the Treasury Department to provide a more forward-looking judgment basis for the allocation of large categories of assets.