Billionaire investor Stanley Druckenmiller, known as a mentor to U.S. Treasury Secretary Scott Bessent, publicly criticized the Treasury's plan to expand its bond buyback program, stressing that the department's artificial suppression of interest rates is only a stopgap measure.
In an op-ed titled "Let the Bond Market Speak" published in The Wall Street Journal on the 24th, Druckenmiller wrote that any government attempt to prop up asset prices against fundamentals "always loses."
Druckenmiller stressed that long-term Treasury yields are information generated by the market and a gauge of the government's fiscal health. Artificial rate suppression, he argued, is merely a subsidy that weakens fiscal discipline and delays solving the underlying problem. He also cited a past failure, when the U.S. government imposed a cap on Treasury yields between 1942 and 1951 to fund World War II, which triggered double-digit inflation.
The two men once worked together at George Soros's Quantum Fund. Druckenmiller mentored Bessent in the early part of his hedge fund career, and the two are known to remain close, speaking almost daily even after Bessent struck out on his own.
Bessent pushed back, saying the bond purchases are not an attempt to lower interest rates artificially but a matter of routine liquidity management. According to Bloomberg the same day, when asked at a press conference whether the Treasury would soon increase the size of its buybacks, Bessent said the department had not yet bought a single bond. Asked whether it was considering reducing the size of its Treasury auctions, he said the Treasury would continue its existing program as it stands, indicating that no further expansion would come before the quarterly Treasury management plan is announced in early November.
Earlier, CNBC, citing two senior Treasury officials, reported that funds in the Treasury General Account (TGA) held at the Federal Reserve could be used for the existing bond buybacks. The TGA balance stood at $935 billion (about 1,300 trillion won) as of the 20th. Morgan Stanley estimated that, depending on how "excess" cash is defined, the Treasury could have between $80 billion and $200 billion (about 111 trillion to 276 trillion won) available to expand the buybacks. U.S. Treasury yields fell immediately after the CNBC report. At the day's close, the 10-year yield ended at 4.703%, down 3.5 basis points (1 basis point = 0.01 percentage point) from the previous day, while the 30-year yield closed at 5.231%, down 4.5 basis points.
Earlier, on the 19th, the Treasury announced it would double the size of its buybacks to $4 billion (about 5.5 trillion won), after long-term yields rose to their highest levels in years. It also disclosed a schedule to at least double purchases of 10- to 30-year securities starting on the 9th of next month and to buy up to $14 billion (about 19.4 trillion won) of those maturities through November 4.
Because the Treasury had until now regularly disclosed changes to its bond purchases through its quarterly Treasury management announcements, the separate announcement was an unusual move. As a result, some market participants believe the administration, with elections in November approaching, has made lowering interest rates a priority. Blake Gwinn, head of U.S. rates strategy at RBC Capital Markets, said the move looked like "a very knee-jerk attempt to stem the sell-off rather than a considered discussion about cash balance policy." Still, he saw the chances of the Treasury tapping the cash as "very, very low," adding that with cyber-attack risks rising, a buffer of reserves is now more important than ever.
