Following Treasury Secretary Bessent's surprise announcement last week to expand the long-term Treasury buyback program, Wall Street has been engaged in heated debate over whether this policy can truly lower long-term U.S. financing costs. Although long-term Treasury yields remain near multi-year highs, the latest market indicators suggest the Treasury's intervention is already having an impact, with traders increasingly reluctant to push against this policy force that the market has dubbed the "Bessent put." Since Bessent announced the expanded buybacks, Treasuries have significantly outperformed interest rate swaps of similar maturities, with the spread between 30-year Treasury yields and swap rates narrowing to its lowest level since February this year. Meanwhile, benchmark Treasury yields, after experiencing brief volatility following the policy announcement, have also begun to gradually decline.

The "Bessent Put" Begins to Take Shape, Market Hesitates to Short Long-Dated Bonds

Bessent announced last week that the U.S. Treasury Department would "at least double" its long-term Treasury buyback program to alleviate pressure in the long-dated Treasury market. Jason Williams, head of U.S. interest rate strategy at Citigroup, stated that the new Treasury policy effectively provides a degree of "safety cushion" for long-term Treasuries, thereby improving the risk-reward structure of holding long-dated bonds. He described this policy support as a new "Treasury put," meaning that when long-term Treasuries experience severe selling pressure and yields rise rapidly, investors begin to anticipate that the Treasury may intervene by increasing the scale of buybacks. Williams noted that both the expanded Treasury buybacks and the recent intervention measures against the yen demonstrate that Bessent is willing to use various policy tools to achieve his objectives. Media reports on Monday indicated that the U.S. Treasury might even utilize funds from its Treasury General Account held at the Federal Reserve to finance further increases in long-term Treasury buybacks. This news further boosted the Treasury market, while falling oil prices also helped alleviate inflation and yield pressures. Although long-term financing costs remain near multi-year highs, and many of the structural factors driving global long-term interest rates higher have not disappeared, recent market performance suggests that without Treasury intervention, yields would likely be at even higher levels currently.

Options Market Clearly Turns Bullish on Long-Dated Treasuries

The impact of the Treasury's policy is equally evident in the options market. Over the past week, bond futures options linked to long-term U.S. Treasuries have clearly shifted bullish, with demand for call options increasing rapidly relative to put options. In contrast, the options skew for short-dated Treasury futures remains near the neutral levels of the past few months, indicating that the market's focus on policy intervention is primarily concentrated on the long end of the yield curve. Alex Manzara, derivatives broker at R.J. O'Brien & Associates, stated that the real "trading opportunity" currently lies at the long end. He noted that if there is any "fear" in the market right now, it is the concern that further government intervention could cause long-term yields to suddenly drop sharply. In other words, while investors previously mainly worried about continued selling in Treasuries and yields spiking further, now that the Treasury has clearly entered the market to buy back long-term bonds, some traders have begun to worry that continuing to short long-dated bonds could trigger sudden policy escalation. Even though some market participants, including billionaire investor Stanley Druckenmiller, believe Bessent's intervention is a mistake, traders must still confront the reality that there now exists a buyer in the market with substantial financial resources that may continue to expand its purchase scale.

30-Year Treasury-Swap Spread Falls to Lowest Since February

Another important indicator reflecting the effectiveness of the Treasury's policy is the spread between Treasury yields and interest rate swaps. In recent years, as the U.S. government has issued Treasuries on a massive scale, Treasury supply has increased rapidly, causing Treasury yields to remain persistently higher relative to swap rates. This development has also spawned a large number of hedge funds participating in related spread trades. Federal Reserve researchers estimate that hedge fund positions in this area have grown from less than $50 billion in 2022 to a record $305 billion last year. Although Treasury yields still remain significantly above swap rates, the gap has begun to narrow following Bessent's announcement of expanded buybacks. Among these, the spread between 30-year Treasuries and swaps has fallen to its lowest level since February this year; the 10-year spread has also narrowed by approximately 3 basis points and currently stands at around 38 basis points. Padhraic Garvey, head of regional research at ING in New York, believes the narrowing spread reflects investors considering the possibility that if the Treasury deems the buyback policy effective, it may expand the program "again and again" in the future.

JPMorgan Survey Shows Investors Reducing Neutral Positions

Investor positioning is also beginning to shift. According to JPMorgan's U.S. Treasury client survey conducted on August 24, investors simultaneously increased both long and short positions, while the proportion of investors maintaining neutral positions fell sharply from 67% previously to 54%, the lowest level since May 26. This indicates that with the Treasury's entry into the long-dated bond market and ongoing uncertainty regarding future Federal Reserve policy, investors are becoming more active in choosing directional positions. The SOFR options market has also seen a large number of new positions. Open interest at certain key strike prices has increased noticeably, reflecting traders repositioning for future U.S. interest rate movements.

Treasury Yields Still at Multi-Year Highs, Fiscal Deficit Issues Remain Unresolved

However, the recent improvement brought by Treasury buybacks has not changed the reality that long-term U.S. financing costs remain near historical highs. The 10-year Treasury yield, which the Trump administration has focused on, currently remains above 4.6%, close to its highest level since early 2025; the 30-year Treasury yield is approaching 5.2%, not far from its highest level since 2007. Libby Cantrill, head of public policy at Pacific Investment Management Company, pointed out that buybacks at the long end of the yield curve may technically help lower yields, but the fundamental reasons driving long-term Treasury yields higher have not changed. One of the most important issues is that the U.S. structural fiscal deficit remains persistently elevated. To finance the massive government debt and fiscal expenditures, the U.S. Treasury still needs to continuously supply large amounts of Treasuries to the market. Therefore, expanding buybacks can alter short-term supply-demand dynamics but cannot eliminate the fiscal fundamentals causing long-term yields to rise.

Overall, Bessent's Treasury buyback program is producing more significant market impacts than some Wall Street participants initially expected. The narrowing Treasury-swap spreads, the shift toward bullish positioning in long-dated bond options, and traders' wariness of further policy intervention all indicate that the so-called "Bessent put" is gradually taking shape. However, questions remain about how long this policy support can last. With no significant relief in sight for the U.S. fiscal deficit and Treasury supply pressures, the Treasury currently appears to be more focused on establishing a policy "safety cushion" for the long-dated Treasury market rather than fundamentally reversing the trend of elevated long-term yields.