The Treasury’s bond-market intervention isn’t working. So what comes next?

Key Points:

• The Treasury's increased buybacks through November signal Washington's intent to control borrowing costs, but these maneuvers mainly improve liquidity and do not solve the underlying issue of financing a growing national debt.
• The government continues to face a significant borrowing need, with a nearly $1.8 trillion federal budget deficit this fiscal year and net interest payments on the national debt expected to surpass $1 trillion by fiscal year 2026.
• Rising oil prices and increased military spending due to the Iran conflict have heightened inflation concerns, while uncertainty over Federal Reserve policy under new Chairman Kevin Warsh adds volatility to the long-term Treasury market.
• There is a divergence between the Treasury’s desire for lower yields through buybacks and Fed Chairman Warsh’s preference for letting markets guide monetary policy, creating tension ahead of the Jackson Hole Economic Policy Symposium.
• Comments from Fed officials at Jackson Hole could lead to significant market reactions across Treasurys, the dollar, gold, and stocks, reflecting investor sensitivity to future inflation and monetary policy signals.