Bessent’s “Fever-Breaking” Effort Falters as US Bond Market Pressure Persists
[Core Summary] US Treasury Secretary Bessent has publicly addressed bond market turbulence on multiple occasions in recent weeks, attempting to cool surging long-end Treasury yields, but the market has responded coolly. The 10-year Treasury yield remains near a key psychological threshold, reflecting deep investor anxiety over federal fiscal deficits, the trajectory of monetary policy, and inflation stickiness. This round of bond market adjustment has persisted for several weeks, and its roots lie not in short-term speculative behavior but in a re-pricing of the global asset pricing paradigm.
Event Details
Bessent’s Cooling Efforts: According to the Financial Times, Bessent has spoken publicly through television interviews, closed-door Wall Street meetings, and social media channels over the past two weeks, emphasizing that the US economic fundamentals remain “sound” and that the rise in long-end rates is “not driven by government debt issues.” He has cited “global disorder” factors to explain the bond market volatility and reaffirmed that the Treasury has ample tools to manage the pace of bond issuance.
The Market’s Lukewarm Response: Despite Bessent’s intensive communication, the 10-year Treasury yield has remained around 4.45%, while the 30-year yield has at one point broken through 4.95%. Investors are clearly not reassured by the Treasury’s soothing messages. Multiple Wall Street fixed income strategists have noted in their reports that the structural characteristics of this sell-off are now evident—“price-sensitive” buyers led by global central banks and sovereign wealth funds are systematically reducing their US Treasury holdings.
Roots of the “Fever”: From a fundamental perspective, this round of bond market pressure is not caused by a single factor. First, the federal fiscal deficit remains at historic highs, with the cumulative deficit for the first 11 months of fiscal year 2026 already exceeding USD 1.7 trillion. Second, although the Federal Reserve has entered a rate-cutting cycle, the terminal rate expectations have been repeatedly raised. Third, foreign official-sector holdings of US Treasuries have declined for several consecutive months, with some emerging market central banks diversifying their foreign exchange reserves into gold and other currency assets.
Deterioration of Liquidity Indicators: Notably, the spread between the Secured Overnight Financing Rate (SOFR) and the Overnight Index Swap (OIS) has continued to widen in recent weeks, indicating that the microstructure of the US Treasury market is under pressure. Some hedge funds are facing new constraints on leverage usage, and some dealers have already reduced their market-making positions in US Treasuries. These technical signals have historically preceded larger-scale liquidity events.
Comparison to Previous Bond Market Stress: Looking back at April 2025, when the Trump administration announced reciprocal tariffs, the 10-year Treasury yield surged by 50 basis points within days, triggering market panic over the “failure of US Treasuries’ safe-haven status.” Bessent was also the primary reassuring voice at that time, but the bond market only truly stabilized after the Federal Reserve urgently released liquidity. This historical context makes the market even more skeptical about the effectiveness of this round of “verbal intervention.”
Panoramic Perspective
The persistent “fever” in the US Treasury market reflects a profound paradigm shift in the global asset pricing system. The role of US Treasuries as the “anchor of global risk-free assets” over the past four decades is facing unprecedented challenges.
Examined from a monetary policy perspective, major central banks are caught in a dilemma between fighting inflation and maintaining economic growth. Since the Federal Reserve began its rate-cutting cycle in 2024, the cumulative cuts have been lower than market expectations, and inflation stickiness in 2025 has further shaken the market’s confidence in the “soft landing” narrative. When the terminal policy rate becomes ambiguous, long-end rates lose their traditional “anchor” reference, and market volatility naturally intensifies.
From a fiscal sustainability perspective, the US federal debt has surpassed USD 35 trillion, and annual interest payments have for the first time exceeded the defense budget, becoming the fastest-growing expenditure item in the federal budget. Bessent himself has warned that the “rollover cost” of the debt is rising at an alarming rate. Every 50 basis point increase in long-end rates implies hundreds of billions of dollars in additional interest payments over the next decade. Such structural pressure cannot be resolved through “verbal intervention” by any single Treasury Secretary.
From a geopolitical perspective, the role of US Treasuries as a “safe haven asset” is also being tested. With the evolution of a multipolar landscape, some countries are systematically reducing their US Treasury holdings and diversifying their foreign exchange reserves into gold, renminbi, and euro assets. The cumulative effect of this process is reshaping the global capital flow map. Bessent has attributed the bond market volatility to “global disorder,” but the deeper cause may well be the adjustment that the dollar-dominated financial system itself is undergoing.
From an asset allocation perspective, the high level of long-end rates is reshaping the behavior of institutional investors. “Duration-sensitive” institutions such as insurance companies and pension funds are beginning to reassess their asset-liability matching strategies, while sovereign funds are increasing their allocations to physical assets and alternative investments. Microstructural shifts in the bond market may continue to influence liquidity distribution across the entire financial system for years to come.
Multiple Perspectives
Official Treasury Position: Bessent maintains that this round of bond market volatility stems from “global investors’ reassessment of the relative value of dollar assets” rather than US fiscal issues. He emphasizes that the US economic fundamentals are sound, GDP growth is robust, and the labor market is resilient, so the rise in long-end rates is “overvalued.” Treasury officials have also hinted that, if needed, the Treasury can alleviate long-end pressure by adjusting the structure of Treasury auctions, such as increasing the proportion of short-term bond issuance.
Wall Street Fixed Income Strategist View: Analysts at institutions such as JPMorgan and Citi generally believe that Bessent’s verbal intervention has limited effect. They point out that the core driver of this bond market adjustment is structural supply-demand imbalance—on the one hand, the scale of government bond issuance continues to expand, while on the other hand, demand from “traditional large buyers” such as foreign central banks and pension funds is declining. This “supply-demand scissor” cannot be resolved through communication.
Hedge Fund and Market Maker View: Some hedge funds and primary dealers have expressed concerns about the current liquidity environment. They point out that the bid-ask spreads on long-end Treasuries have widened, and volatility in the repo market has also increased. Several large market makers have already reduced their inventory positions in US Treasuries, which historically has signaled that larger volatility is on the horizon.
International Institution View: The International Monetary Fund (IMF) noted in a recent report that US fiscal sustainability is an important risk to global financial stability. The organization has recommended that the US implement fiscal consolidation over the medium to long term, including raising taxes and cutting non-essential spending. But such recommendations are difficult to advance in domestic politics.
Emerging Markets Perspective: For emerging market economies, the persistently high level of US Treasury yields brings additional pressure. The high yields of dollar assets have attracted massive capital reversions, emerging market currencies are generally under pressure, and external debt servicing costs have risen. Central banks in countries such as India, Brazil, and Indonesia face difficult policy choices—following with rate hikes would dampen domestic economic growth, while not following could trigger capital outflows.
Editor: GoodInfo Global News Desk