Bessent wants bigger bond buybacks, but markets barely blink
- The US Treasury Secretary is considering bond buybacks exceeding $4 billion.
- Bessent says current yields do not reflect underlying economic fundamentals.
- The US official sees a good chance that the deficit has peaked and signals an increased focus on fiscal consolidation.
United States (US) Treasury Secretary Scott Bessent said on Thursday that the Treasury could increase bond buybacks beyond $4 billion, partly to signal that current yields do not reflect underlying economic fundamentals. He stressed that interest rates have nothing to do with the buyback decision.
On fiscal policy, Bessent said there is a very good chance that the US deficit has already peaked and indicated that the administration will likely increase its focus on fiscal consolidation. He also played down the $40 trillion debt threshold and expects tariff revenues in 2026 to remain similar to 2025 levels.
Bessent added that the Treasury and the Federal Reserve (Fed) would coordinate in the event of changes to the central bank’s balance sheet. On inflation, he noted that market indicators point to lower price pressures ahead.
Key takeaways
Buyback could be more than 4 billion.
Part of it is signaling.
We want to show that yields do not reflect underlying fundamentals.
Probably going to announce increased focus on fiscal consolidation.
Nothing magic about $40 trillion debt number.
Expect tariff 2026 income will be similar to 2025.
Very good chance we've seen peak deficit.
Markets got a little ahead of itself.
Treasury and Fed would work together if any change in balance sheet.
We would adjust.
Rates have nothing to do with buyback decision.
Markers are saying [inflation] will be lower in future.
Market reaction
The US Dollar (USD) showed little reaction to Bessent’s comments, with the US Dollar Index (DXY) remaining broadly unchanged on Thursday, trading around 98.80 at the time of writing. Meanwhile, the benchmark 10-year US Treasury yield remains supported after Wednesday’s decline, rising by more than 6 basis points on Thursday to around 4.70%.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
