US Treasury Secretary stated that oil prices are expected to decline, aiming to create conditions for negotiations. The comment followed a robust meeting with China Governor Pan on Sunday.

Market Outlook

The Treasury Secretary emphasized the objective of bringing relevant parties to the table. The statement was made during an interview with CNBC.

The US Treasury Department has doubled its liquidity-support buyback cap for long-dated bonds to $4 billion per operation, with reports indicating Secretary Scott Bessent could tap the near $1 trillion Treasury General Account to fund these purchases.

Market reaction and yield volatility

The announcement, effective from September 9 through November 4, targets bonds maturing in 10 to 30 years. The previous cap stood at $2 billion.

Yields reacted sharply but inconsistently. Immediately following the news, the 30-year Treasury yield dropped to 5.207% and the 10-year slipped to 4.65%, reversing a prior climb to a 19-year high. However, economist Justin Wolfers described the event as "24 hours of drama," noting that yields quickly reversed course. By Thursday, the 30-year yield climbed as high as 5.27%, while the 10-year settled at 4.79% and the two-year at 4.20%.

'The Bessent Put' and Fed implications

Macro investor Raoul Pal labeled the intervention "The Bessent Put," arguing that while the extra dollars are small, the signal is enormous because the fiscal authority, not the Federal Reserve, stepped in to defend the long end of the market. Pal suggested this forces Fed Chair Kevin Warsh to deliver his part of a "grand bargain" between the institutions.

Economist Peter Schiff argued the move effectively neutralized the Federal Reserve's ability to combat inflation. "Inflation-sensitive markets are ripping because the Trump Administration pulled the rug out from under Warsh," Schiff said on X. He warned that investors now realize the Fed will not undermine the Treasury's fiscal actions, predicting "Commodities now, CPI later."

Schiff further argued that Treasury Secretary Scott Bessent's decision to announce the bailout signaled inherent instability, stating that "sounding the alarm made the problem much worse."

De-dollarization concerns resurface

The buyback plans have brought Bessent’s earlier warnings about de-dollarization back into the spotlight. In an October 2023 interview, Bessent cautioned about Beijing’s gold purchases and noted that India and China have pathways to pay for oil in rupees and renminbi, reducing the dollar’s role in those flows.

He argued that the idea of a "global South" looking for alternatives to the dollar has become a real consideration. "You have this new term, the Global South, that wants out of the dollar system. It will be very interesting if the French Republic also wants out of the dollar system," Bessent said at the time. He framed sanction power and financial plumbing as increasingly linked, changing incentives for countries and companies.

Charlie Bilello, Chief Market Strategist at Creative Planning, criticized the move, arguing it does not reduce the nation’s overall debt but merely reshuffles it.

Precious metals and equity performance

Precious metals rallied on the news. According to The Kobeissi Letter, gold and silver added a combined $1.3 trillion in market cap post-announcement. Spot gold prices rose 0.47% to $4,496.40 an ounce, while silver prices increased 0.31% to $67.131. SPDR Gold Shares rose 3.84% to close at $413.84 and gained a further 3.82% in extended trading.

Bessent framed gold as distinct from government-issued money, calling it "not a fiat currency" and stressing its scarcity. He noted that the People’s Bank of China has become the biggest buyer of gold and floated the possibility of a renminbi exchangeable into gold at a premium. He also criticized Russia for moving reserves into euros rather than gold, arguing the metal’s price could have been higher had they done so.

Bitcoin’s recent 20% surge has been linked to the Treasury’s support for long-dated bonds, reviving the debasement trade narrative. Bessent characterized Bitcoin differently from gold, calling it "a risk on asset" while viewing gold as a stable store of value.

Equity markets showed mixed results. The iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) closed 0.92% lower at $82.34 on Thursday. It is down 6.28% year-to-date. Major equity indices also declined on Thursday: SPDR S&P 500 ETF Trust (NYSE: SPY) fell 0.84% to $762.60, Invesco QQQ Trust ETF (NASDAQ: QQQ) dropped 0.72% to $710.93, and State Street SPDR Dow Jones Industrial Average ETF Trust (NYSE: DIA) ended 1.27% lower at $527.51. In premarket trading on Friday, SPY was up 0.35%, QQQ gained 0.59%, and DIA advanced 0.40%.

Structural debt concerns remain

Despite the short-term intervention, structural concerns persist. Economist Mohamed El-Erian described the buyback as a "Band-Aid" that does nothing to resolve the underlying drivers of elevated long-term interest rates or the federal government's $40 trillion national debt. He noted that interest payments now consume 20% of tax revenue.

Corporate borrowing pressure is also mounting. Amazon.com Inc., Alphabet Inc., Meta Platforms Inc., Oracle Corp., and Microsoft Corp. are driving a surge in AI-linked corporate debt, with issuance from the group projected to reach $250 billion this year, according to Goldman Sachs.

President Donald Trump dismissed concerns about elevated borrowing costs, stating, "When our country is strong, interest rates should go down... But this country is strong."

What the Numbers Show

The divergence between the Treasury’s short-term liquidity support and its long-term debt trajectory highlights a structural tension. While the $4 billion buyback cap aims to stabilize yields, the federal debt stands at $40 trillion with interest payments consuming 20% of tax revenue. This suggests the intervention addresses market mechanics rather than fiscal fundamentals, reinforcing Bessent’s earlier warnings about the evolving global payments landscape and the potential for de-dollarization.