Chartbook 470 Treasury v. Fed 2026: Battle Royale or “Epic Fury” in the bond market?
To have the two central agencies of government economic policy not engaged in a coherent division of labour, but pulling in opposite directions, points to a fundamental dissensus at the heart of government.
Treasury Secretary Scott Bessent has announced interventions in the US Treasury bond markets, with the aim of driving up bond prices and reducing long-term yields. This move comes at a time when the Fed's new chair, Kevin Warsh, is trying to establish a conservative regime. The Treasury's actions are seen as a step away from the Fed's desired policy of breaking out of the habit of buying bonds on a large scale, which was common after the 2008 financial crisis.
Treasury's justification for its interventions is based on the claim that the bond market is out of line with "fundamentals" and that the Treasury has an asymmetrical informational advantage. The Fed, on the other hand, seeks to limit the use of its own asymmetrical advantage and allow "real" market forces to speak. This situation has the potential to create a major crisis in the bond market.
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