In the past 24 hours we had Treasury Secretary Bessent increase the size of bond repurchase operations from $2 billion to “at least” $4 billion.

The 30-year bond went from 5.33% on Tuesday, to 5.28% right before the announcement (an “interesting” move ahead of the surprise announcement). Yields plunged to 5.18% after the announcement, but as of 8:30am ET today, they are back to 5.26%, almost all the way back to where they were before the announcement.

What was also “interesting” yesterday, was that while Gold, Bitcoin, and the dollar all acted on “debasement,” the Nasdaq 100, often very responsive to yields, gave up early gains on the announcement and finished down on the day.

The “minutes” didn’t help the Treasury Secretary as they made it clear that a group within the Fed is focused on the need to hike rates.

The rising cost of debt, not just in nominal terms, but also as a percentage of the non-discretionary budget deficit, is getting a lot of attention. This is starting to drive the conversation on rates and force the “need to do something” mentality that is appearing.

Treasury Yields

If that is all we get from the Treasury and the Fed on rates, then look for pressure to mount on the back end. A couple of billion every week or so seems like a lot, but is a “drop in the bucket” compared to the overall size of the bond market. On August 6^th, Alphabet issued a 30-year tranche with a notional amount of $4.5 billion.

In an era where Treasuries face competition from other sovereign debt issuances and highly rated “compute” issuers, the Treasury is going to need to do more than just toss around a few billion here and there. Sounds crazy, but it is the world in which we live.

Funny enough on August 31^st, 2025, we published “Forcing Yields Lower Across the Curve.” Here we are, one year later, contemplating the same issues.

The next “obvious” step, if there is a real commitment to try to wrangle control of the long end of the yield curve, is another Operation Twist at the Fed.

• The Fed would sell some of their shorter-dated bond holdings and buy longer-dated bonds.
• This is balance sheet “neutral,” in that it doesn’t increase the size of the balance sheet. That would at least fit with Warsh’s historically expressed desire to shrink (or at least not grow) the balance sheet.
• It does suck a lot of duration out of the market. The Fed owns $18 billion of the 2% Treasury due November 2026 (as a quick example). Sell a couple positions like that and you can take down an entire long bond auction (especially if Bessent follows up by further shrinking the size of longer-dated bond auctions going forward). Have to dig out some old QE models and get them running to do a more thorough analysis of what the Fed could do, but Operation Twist would be a big deal.

From Bloomberg TV this morning: Fed’s Warsh Needs to Launch Operation Twist, Academy’s Tchir Says. This is only a small segment of what was a two-segment interview – the first rates- and Fed-specific, the second, a little more on Iran, but keeps coming back to the competition the Treasury faces globally (with a particular emphasis on the attractiveness of high-quality issuers in the “compute” space, providing a compelling risk/reward for bond investors, relative to just owning Treasuries).

A lot of back and forth during these interviews, but for Bessent to be successful in his attempts, he will need a lot of help from Warsh.

A lot to unpack and a lot of uncertainty about how “all in” the Treasury or the Fed (or both) are on reducing bond yields.

“Way” Out of the Box – Yield Curve Control

We wrote about the potential for Yield Curve Control at the end of last August, and, yeah, here we are again contemplating if that is a possibility.

• It should be a “last” resort (one that I don’t think should be taken, but if we “trust” the Fed to “know” (or set) the front end of the curve, why not the entire curve?). It goes against everything we know or have been trained to think, but once you’ve given control to one part of the yield curve, how “crazy” is it to relinquish control to the rest of the yield curve?
• While this would be “shocking,” it would also not be surprising, if that makes any sense. We’ve been drifting down this slippery slope since Bernanke first embraced “alternative” options. Yellen clearly did not try to pull us off the path that Bernanke had set in motion. Powell, when COVID hit, went all in on Bernanke and “upped the ante” by buying credit products (including ETFs). We’ve been on a slippery slope, and no one has really tried to get us off of that slope.
• This President in particular likes to say that he “sets the rates,” so why wouldn’t he set the rate on rates?

But Before Yield Curve Control

We jumped the gun, and think a few things would happen (including Operation Twist) before we ever got to yield curve control.

The most immediate action is:

• Convince the market to start pricing in cuts rather than hikes.

With the focus on the bond market, Warsh’s messaging at Jackson Hole will be even more important! Last weekend’s Warsh Puttin’ on the Foil (or Warsh’s Mark Antony moment for more sophisticated readers).

If he doesn’t challenge conventional wisdom (like how inflation is measured, and why hikes won’t help with inflation driven by the war or by the compute build out), then bond yields are likely to continue to grind higher.

Other steps that I would like to see:

• Get the Clarity Act passed and ramp up stablecoin growth. The stablecoins would be a good source of demand for T-bills (and maturing coupon bonds).
• Sell, mark-to-market, or somehow monetize the country’s gold holdings! This first came up in All Roads Lead to Mar-a-Lago.

While I am not in the “barbarous relic” camp, I see no reason not to sell some while gold is around $4,500. Yes, selling gold would send a signal, causing prices to drop, but how low would they really go? With (according to AI) 261 million ounces, we have over $1 trillion in gold (did you know the West Point Mint has 54 million ounces? There is something West Point has, that the Naval Academy doesn’t 😊). The carrying cost is $11 billion.

Sadly, even $1 trillion is small compared to our debt and doesn’t even cover a year’s budget deficit, but it seems weird not to try to get something out of this.

Selling would probably hurt the dollar (which this admin likely views as a feature, not a bug), but I don’t think it would change demand for Treasuries in a negative way. I cannot remember the last time (or ever) reading a report arguing about relative value on yields globally based on how much gold that country held (though I might not be traveling in those circles).

Iran

I’m skeptical of Economic Armageddon for Iran, because for it to really work, you would need to be tough on China, which puts our economy at risk (we are still far too dependent on China for smelted, processed, and refined metals/commodities/rare earths/critical minerals (we need more ProSec™ and we need it faster)). On top of that, China would be forced into the “normal” channels to buy oil, putting upward pressure on oil prices, right as many question how much lower the U.S. can drain the SPR. We will see what announcement we get (in theory this week) and when it would be implemented (which will likely be viewed as the 1^st extension date, rather than the implementation date by the market). If and when we see a proposal, we will analyze it, but at this stage it will either be:

• Too weak to do much more on the economic front than is already being done.
• Might work, but only because it is harsh with China, which opens up a bigger can of worms for equity valuations.

Bottom Line

We are either at the early stages of a coordinated effort to support yields, or both yields and stocks are going to face some weakness.

I’m leaning towards the former. It seems “weak” to come out with only the increased repurchase amount, but it is possible it was just a last-minute step and not part of a concerted effort. That doesn’t “smell” right to me, but I think we wait and see what sort of news comes out ahead of Jackson Hole before going all in on lower bond yields and much higher stock prices.

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