Bessent's Delicate Balancing Act

Bessent’s Curious Bond Intervention

Authored by a GoldFix Founder and Executive Director at a leading investment firm.

We wrote last month on Goldfix about the curious actions of the Treasury Secretary intervening in a bond market on the pretext of improving liquidity where no such enhancement was needed. So far, this month he continues to challenge markets with his rhetoric.

For example, as reported by Fortune on 9^th September he stated, “I have asymmetric information. I am the house now. You can bet against me if you want.” We find it intriguing that so much bravado should be shown for such a small intervention. Could there be more to it than just getting the most bang for your buck?

Then, on the 10^th the Treasury stated that it would buy up to $6bn. Given the bravado, the market expected $10bn. Yields are breaking out. Why is the Secretary cornering himself? What is he concerned about? Let us attempt to fill the void.

Treasury Secretary Bessent's delicate balancing act between saving the market and saving the bond market

Reading the Market’s Tells

The market gives you “tells”. From experience, the Treasury Secretary knows how to read these. From the start of the Iran War at the end of February until the end of March, real yields on US Treasury Debt increased. For example, of the almost 50bp increase in the yield of the US 10 year Note over this period, real yields accounted for 87% of this move. While the market narrative was concern about the impact of oil prices on inflation, the reality from market pricing is that inflation spreads were well behaved. At the mid-March peak, inflation spreads only widened 16bp on the 10-year. This is shown in Chart 1 below:

Chart 1
US Treasury 10-Year Yields

Source: Bloomberg

We isolate this time frame as this move coincided with a sell-off in US equities. Whether it was the S&P 500, the Nasdaq, Semi-Conductors or the Mag-7; all declined during this period - see Chart 2.

Chart 2
SMH US Equities since the Iran War

Source: Bloomberg

While narratives have later emerged from April onwards as the driving forces behind the ongoing expansion in real yields (that are coincidentally AI and US Equity bullish): competition for capital from Hyperscalers; a capex boom from AI buildout; or future productivity gains, this was something different.

10y yields increased, driven by real yields. Inflation spreads were well behaved.
US Equities broadly declined.
The US Dollar rallied.

A Flight Out of Duration

This was not a sell-off in yields and stocks on inflation concerns. Inflation spreads were well-behaved and the USD was bid. This was not a risk-off event with a flight to quality at the long-end and into the USD while equities sold off. The only plausible conclusion from the end of February and for most of March is a flight to quality to US dollars at the short end and, also, out of duration. Whatever the reason: investor recalibration, war-torn countries liquidating holdings to fund necessary purchases, oil importers requiring extra liquidity; financing a war requires a higher risk premium at the long end.

A Wartime Treasury Secretary

This Treasury Secretary is a war-time Secretary. On 5th of September 2025, the Department of Defense (sic), by Executive Order, became the Department of War. Accordingly, we shall continue to contemplate his actions but frame it within the geopolitical constraints under which he operates:

The United States is, at the very least, currently financially engaged in two major theatres of war, namely Ukraine since 2022 and Iran since 2026. Her adversaries in both conflicts, Russia and Iran finance their militaries with the sale of an endowment of real assets - primarily crude oil. The United States funds her military in the bond market. In this framework, the stakes are high!

We introduce Ferguson’s Law (a thesis developed by Sir Niall Ferguson) to our thinking, which states that “any great power that spends more on debt servicing than on national defence risks geopolitical decline and collapse”. Sir Niall deemed the Ferguson Limit was breached in 2024. The CBO 10-year Budget Projections released in February 2026 show a continuation of this trend with defence expenditure peaking as a percentage of GDP at 2.9% in 2025 and declining to 2.4% by 2036. Contrastingly, interest expenditure increases from 3.2% of GDP in 2025 to a forecast 4.6% of GDP in 2036. Not good arithmetic if Ferguson’s law is binding.

Continues here

Bessent’s Delicate Balancing Act

Reading the Market’s Tells

A Flight Out of Duration

A Wartime Treasury Secretary

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