Bessent plays down bond market alarm as long-term yields hit multi-year highs

US Treasury Secretary Scott Bessent has moved repeatedly to reassure markets as long-term Treasury yields climbed to levels not seen in decades. Bond markets have been rattled by a combination of rising oil prices, fiscal deficit concerns and a wave of large corporate bond issuances by AI companies, but Bessent has argued that the underlying strength of the US economy and stable inflation expectations mean the situation does not amount to a crisis.

In an interview with Fox Business on Tuesday (local time), Bessent said he did not believe the United States was "in any kind of serious situation" with respect to the Treasury market.

He also dismissed concerns about the sharp rise in yields over the past month. "What happened over a month doesn't matter," he said, adding that US bonds had delivered the best performance among major economies both in August and since President Donald Trump took office on Jan. 20, 2025.

Bessent said the recent yield surge did not reflect a deterioration in US economic fundamentals. He pointed to stable inflation expectations as a key component of bond yields, and cited solid economic growth and the United States' competitive edge in the AI industry as supporting factors.

In a separate interview also on Tuesday, Bessent said he was not sure "where the bond market turmoil is," doubled down on his view that US bonds were holding up well relative to peers, and said the economy continued to grow despite large fiscal deficits.

Bessent's repeated efforts to calm markets reflect a sharp acceleration in long-term Treasury yields that began last month. Oil prices surged following the war with Iran, worries deepened over the United States' massive fiscal deficit and national debt, and a flood of corporate bond issuances from major AI companies added to bond supply pressure.

The dynamic puts Bessent in an awkward position: even as President Trump has been demanding steep interest rate cuts, market rates have been moving in the opposite direction.

The Treasury Department's decision on Aug. 19 to at least double the size of its long-term bond buybacks — from $2 billion to at least $4 billion per operation — was widely interpreted as an attempt to cool the rise in long-term yields. Bessent drew a line at criticism from some central bank officials who said the Treasury was distorting markets.

Analysts say concerns about the Treasury market also lie behind the United States' unusually vocal stance on yen weakness in recent weeks. A sharp drop in the yen could prompt Japan to sell large amounts of US Treasuries to defend its currency, pushing bond prices lower and yields even higher.

On Sunday, Bessent met with Bank of Japan Governor Kazuo Ueda and said it was important to conduct monetary policy soundly and communicate clearly with markets to avoid excessive exchange rate volatility — widely read as pressure on the Bank of Japan to raise interest rates and send clearer policy signals to help arrest the yen's slide.

Despite Bessent's repeated reassurances, however, long-term Treasury yields have shown little sign of settling down.

The yield on the benchmark 10-year US Treasury note rose 3 basis points from the previous session to 4.788% on Wednesday morning, its highest level since Jan. 14, 2025.

The 30-year yield, which influences a wide range of borrowing costs in the real economy including mortgage rates, climbed more than 2 basis points to 5.272%, approaching its highest level since 2007 and deepening concerns about the economic toll of a prolonged high-rate environment.