WASHINGTON (AP) — Interest rates ticked up on Thursday, even as Treasury Secretary Scott Bessent sought to curb longer‑term borrowing costs.
WASHINGTON (AP) — Interest rates rose Thursday despite Bessent’s attempt to tamp down longer‑term borrowing costs, a signal that Wall Street remains uneasy about swelling government debt, aggressive tech‑sector borrowing, and the Federal Reserve’s steadfast inflation fight.
The yield on the 10‑year Treasury note, a key benchmark for mortgage rates, climbed back to 4.69% on Thursday — nearly the same level seen early Wednesday before Bessent startled markets by announcing that the Treasury would double its bond‑buyback program to $4 billion per operation, up from $2 billion. The buybacks aim to shrink the supply of 10‑ to 30‑year bonds, thereby lifting their prices; when bond prices rise, yields fall.
Speaking on CNBC Thursday, Bessent said the repurchase program could eventually exceed $4 billion.
“We have a sizable toolkit, so we’ll see how it plays out,” Bessent remarked. “We believe current yields do not mirror the underlying fundamentals.”
Higher bond yields translate into steeper borrowing costs for consumers and businesses, a trend the Trump administration has identified as a top priority to reverse. Home‑buying activity has softened as mortgage rates have climbed this year.
President Donald Trump has repeatedly urged the Federal Reserve to cut rates, yet the recent upward drift in yields is driven mainly by market forces. The 30‑year Treasury yield reached 5.23% on Thursday, only marginally below the 19‑year peak hit earlier in the week.
Treasury’s Intervention Fails to Address the Underlying Issues Jittering the Bond Market
Bessent also noted that the Trump administration plans to unveil a new deficit‑reduction initiative, possibly as early as Monday. He argued that the fiscal shortfall will peak this year, partly because it has been inflated by temporary tariff refunds.
Although deficits have persisted for years, total federal debt surpassed $40 trillion on Wednesday — a staggering milestone reached just months after the national debt first crossed the $39 trillion threshold in April. Meanwhile, the Congressional Budget Office projects that the annual gap between government revenues and outlays will exceed $2 trillion this year, a figure rarely seen outside of recessionary periods.
Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, emphasized that curbing the deficit rests chiefly with Congress, not the Treasury Department.
“What we’re observing is that the market remains somewhat doubtful that Treasury can follow through on these measures,” Goldberg said.
Another upward pressure on yields comes from the surge of debt issued by major technology firms to fund AI data‑center construction. The flood of new bond offerings gives investors more alternatives, which depresses bond prices and pushes yields higher.
Investors Question the Fed’s Resolve to Tame Inflation
Inflation remains a concern as oil prices climb amid uncertainty over when Iranian tankers will be able to leave the Persian Gulf freely. Prices rose again Thursday after Trump warned Iran of “the most crushing economic operation ever taken against any country,” pushing Brent crude to roughly $94 a barrel — up from about $72 before the conflict began.
The Federal Reserve traditionally combats inflation by lifting its benchmark rate to curb borrowing and spending and cool the economy. However, the newly appointed Fed chair Kevin Warsh has not yet indicated whether he will pursue that course. At his late‑July press conference, he created confusion about whether he views higher rates as the appropriate response.
He also hinted that the Fed might soon adopt a different gauge for tracking inflation, which it aims to keep near 2%. Inflation has stayed above that target for more than five years, registering 3.7% in June according to the Fed’s preferred measure.
Mark Cabana, head of U.S. rates strategy at Bank of America Securities, said a primary driver of the higher borrowing costs is “the heightened uncertainty surrounding how the Fed will contain inflation — and what it will do if things don’t go as planned.”
Nevertheless, Warsh has stressed that he prefers to let market forces determine rates rather than signal his own intentions, a stance that puts his approach at odds with Bessent’s effort, which has led investors to wonder what further steps the Treasury might take to rein in yields.
The rise in rates has increased pressure on Warsh to elucidate his stance when he delivers a high‑profile address next Friday at the annual Fed conference in Jackson Hole, Wyoming.
“Now the ball is in the Fed’s court — and really in Kevin Warsh’s hands,” Cabana observed. “The market is waiting to see whether Warsh will respond and outline a clearer plan.”
Warsh was appointed by Trump after Jerome Powell’s term ended in May. Trump repeatedly criticized Powell for not cutting rates, fueling speculation that Warsh may be inclined to lower rates to appease the president.
Short‑term Treasury yields slipped after the Fed’s July 28‑29 policy meeting, while long‑term yields climbed — an atypical reaction that, according to BNP Paribas strategists, could indicate investors believe the Fed wishes to keep its benchmark rate low rather than raise it.
Treasury’s Buyback Program Remains Modest Relative to Market Size
Although Bessent speaks of billions of dollars in bond buybacks, the Treasury market is enormous; even purchases at that scale may produce only a modest impact. Analysts at Macquarie estimate that the U.S. government will need to issue roughly $550 billion in bonds this quarter to fund its operations.
Historical precedent shows that government interventions in the bond market tend to have limited effectiveness. “While such measures can dampen volatility and provide short‑term relief, they have not succeeded in permanently lowering borrowing costs when fiscal, inflation, or supply pressures remain adverse,” according to UBS Wealth Management strategists, citing past episodes in Japan and the United Kingdom.
