Will Secretary Scott Bessent fire his bazooka to avert yields climbing above 5%?

The U.S. bond market has been a major focus recently, with government debt facing pressure from inflation, AI investments and the nation's soaring fiscal debt. This has driven up U.S. Treasury yields, reaching near record highs for the 30-year bond and topping benchmarks like the 10-year and 2-year. Despite Treasury Secretary Scott Bessent's attempts to slow the sell-off, yields have continued to climb.

The bond market's reaction has led some to claim that Bessent needs to deploy his "bazooka" - a reference to large-scale bond buybacks funded by Treasury bills, dubbed the "Bessent Twist." In August, the Treasury promised to increase buybacks for longer-term bonds to $4 billion, which later rose to $6 billion in 10-year to 20-year maturities.

However, the buyback operation only attracted $5.187 billion in offers, amounting to a relatively small portion of the $31.8 trillion Treasury market. The recent bond sell-off has also been fueled by consumer and producer inflation reports prompting expectations of a 25 basis point Fed rate hike. Yardeni Research suggests that a rate hike could help ease upward pressure on long-term yields.