Morning Bid: So much for the Bessent bid

Treasury Secretary Scott Bessent's bid to buy long-dated government debt turned out to be a sell signal for the markets. In just one day, 30-year yields rose to 5.25%, close to pre-intervention levels. Bessent doubled down, promising to buy over $4 billion in bonds per transaction and hinting at a fiscal consolidation plan led by President Donald Trump.

However, analysts pointed out that the $4 billion buy would only represent a fraction of the $32 trillion Treasury market, and the funding would likely come from higher borrowing at the short end, possibly at higher yields. The prospect of fiscal consolidation seemed less credible given the country's budget deficit, which exceeded 6% of GDP, and the $1.2 trillion spent just on interest payments related to the $40 trillion debt.

The administration's calls for higher taxes and cuts to Social Security and Medicare added to the pressure. Bessent's CNBC appearance revealed that the bid was not driven by liquidity concerns but aimed at keeping yields from dominating the media daily. If investors perceived the plan as politically motivated rather than market-driven, a yield spike above 5.30% would likely follow.

Bessent also discussed expanding economic warfare against Iran, including the toughest sanctions in history, and a media conference on Monday to detail these steps. This further dampened hopes for a peace deal that would reopen the Strait of Hormuz, causing Brent crude to hit a one-month high of $94.71 before settling around $93.80.

Analysts noted that a refinery output shortage was pushing up diesel prices, or the crack spread, impacting various sectors and raising questions about central banks' ability to navigate the inflation shock.