Treasury Secretary Scott Bessent’s surprise plan to tamp down US borrowing costs by expanding bond buybacks may have sparked fierce debate about its ultimate effectiveness, but key market metrics and positioning show that it’s having an impact.
Since Bessent’s announcement last week, Treasuries have outperformed equivalent-maturity swaps, narrowing the 30-year spread between the two to the smallest since February. Benchmark US yields have also drifted lower after initially see-sawing in the wake of the government’s plan to “at least double” its buybacks of longer-dated bonds.
“This new Treasury ‘put’ improves the asymmetry of owning the long end by providing a potential light backstop,” said Jason Williams, head of US rates strategy at Citi. Bessent’s recent actions, including the increased buybacks as well as yen intervention, “all point to someone ready to do whatever it takes to achieve their goals.”
On Monday, CNBC reported that the department could use the Treasury General Account — the department’s cash parked at the Federal Reserve — to finance these increased purchases of long-dated bonds. That gave a further boost to the market, which also got a lift from a drop in crude oil prices.
While long-term borrowing costs remain close to their highest in years, with many of the structural forces driving global yields upward unchanged, the market moves suggest they would be higher still absent Bessent’s intervention. And even if the longer-term impact of the buybacks is less certain, many traders who now know there is a big buyer in the market are reluctant to stand in the way of a “Bessent put.”
A similar theme is playing out in the options market. There’s been a bullish tilt in the past week, as evidenced by a sharp run-up in calls relative to puts on US bond futures, which track long-maturity Treasuries. By contrast, the so-called skews for futures on shorter-maturity Treasuries have remained closer to the neutral levels that have prevailed for several months.
“The current ‘play’ is in long end, and current fear, if you can call it that, is that long rates might plunge due to intervention,” said Alex Manzara, a derivatives broker at R.J. O’Brien & Associates.
Swaps are derivative contracts through which two sides agree to exchange interest payments, typically a floating for a fixed rate. They are often used by companies and investors to hedge their interest-rate risk, such as by matching payments against future liabilities. In the US, they’re typically linked to the Secured Overnight Financing Rate, with the 30-year swap reflecting market expectations over where rates will average over the coming three decades. That makes it a similar financial product to a 30-year US Treasury.
The narrowing swap spreads reflect the chance “that the buybacks could be increased again, and again, in the future should the US Treasury deem it a suitable policy,” said Padhraic Garvey, regional head of research for ING Groep NV in New York. “The absolute level of Treasury yields is of course relevant, but is only part of the story.”
In recent years, as the supply of government bonds globally ballooned, US yields have gapped out relative to swap rates. That divergence has sparked increased hedge fund interest in betting on the direction of swap spreads. Researchers at the Federal Reserve estimated their positions had risen to a record $305 billion last year from less than $50 billion in 2022.
While Treasury yields are still substantially higher than swap rates, Bessent’s announcement has provided some relief. The 10-year swap spread has compressed too, with the gap three basis points smaller at around 39 basis points.
Still, the 10-year US yield — which Bessent has said President Donald Trump’s administration is targeting — is trading not far from 4.7%, remaining close to its highest level since early 2025. The yield on 30-year Treasuries is near 5.2%, within sight of their loftiest since 2007.
“While conducting buybacks at the long-end of the yield curve may technically decrease yields, a fundamental reason why Treasury yields are higher – notably higher structural US budget deficits, which requires a significant supply of Treasuries to finance the US debt – is not changing anytime soon,” said Libby Cantrill, head of public policy at Pimco.
Here’s a rundown of the latest positioning indicators across the rates market:
JPMorgan Treasury Client Survey
Investors surveyed by JPMorgan Chase & Co. on Aug. 24 reported more long and short positions, with neutral positions falling to 54%, the fewest since May 26, from 67%.
Across SOFR Sep26, Dec26 and Mar27 options, open interest surged in the 96.0625 strike, concentrated in Sep26 and Dec26 puts. Notable flows included buying of SFRU6 96.1875/96.0625 put spread and of SFRZ6 96.125/96.0625/95.625 put tree.
The 96.25 strike remained the most populated across Sep26, Dec26 and Mar27 option tenors, with heavy open interest in Sep26 and Dec26 calls. In the four most populated strikes, open interest in Sep26 and Dec26 calls was more than twice as large as in puts.
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