The Bessent Put Expires in November

Trump is abusing the US Treasury to make the economy look better than it actually is, to help with the midterm election in November. Scott Bessent is tasked with getting mortgage rates under 7%, long yields off their highs, and making sure there are no bond-market headlines before the midterms. Every action since August fits that mandate, and the mandate has a hard expiry. It isn’t priced in yet because the operation exists specifically to stop it from being priced in.

What happened

On 19 August, Treasury doubled its scheduled long-dated buybacks from $2bn to at least $4bn per operation, running through 4 November, the same week as the quarterly refunding and the next FOMC meeting.¹ The next day, on CNBC, Bessent said the operation could go bigger than $4bn and that “yields don’t reflect the underlying fundamentals.”² By the 24th, sources told CNBC that Treasury was weighing tapping the roughly $950bn Treasury General Account to fund even larger purchases.³

None of this was framed as crisis response. There was no failed auction, no dealer stress, no broken market. Treasury’s own justification was that liquidity in the 30-year sector was weak and needed “signalling.”²

Bessent accused Janet Yellen’s Treasury of doing exactly this back in 2024, amplifying a paper by Stephen Miran, now a Fed governor, and Nouriel Roubini that called it “activist Treasury issuance”: Tilting toward short bills to hold long yields down ahead of an election.⁴ Miran’s paper warned that once one administration starts, every future one will too. Eighteen months later, that’s Bessent’s own playbook, run with a bigger checkbook.

The fundamentals point the other way

PCE inflation has run above target for five straight years. Fed Chair Kevin Warsh told the Jackson Hole symposium in August that conditions are “not especially restrictive” and that the Fed still has work to do.⁵ Days before this post, the Fed hiked for the first time since 2023, and long yields kept climbing anyway: The 10-year sits at 4.80% and the 30-year at 5.25% today, both above where they were before Treasury started buying.⁶ Layer on a deficit near 6% of GDP at full employment, debt past $40tn, interest costs above the defense budget, roughly a third of marketable debt rolling within a year, and fresh tariff and oil-shock inflation, and the picture is not one where long yields should be falling on their own.

Yields fell on the 19 August announcement, but came back up within a day.⁷⁸ Every escalation since, bigger buybacks, then the TGA, is a measurement of the gap between where the market wants prices to be and where it is being bent to.⁹ Stan Druckenmiller put it plainly: Long yields are “the only fiscal disciplinarian the U.S. has left,” and if the 30-year needs to trade at 5.5% to clear, “that isn’t a crisis. It is an invoice.”¹⁰

“It’s priced in”

The government is committed to fighting the market, and it has the money to do that for as long as Trumpy-boy needs to keep up appearances. And a price can only reflect a view people are free to act on; anyone who attempts to correct prices right now gets bought against by a counterparty with the national balance sheet.

Profit?

The government only needs rates held artificially low until the election is over. Then it will resolve; that’s the arbitrage.

American investors can (via e.g. IBKR) buy a plain put on long-dated Treasury futures, or on TLT: Clean, linear exposure to exactly the move this thesis expects. Europeans (via e.g. SG products on TR) only get a knock-out structured product on the same futures, which is not ideal: It bleeds a daily risk premium, and the knock-out barrier can get triggered by an overnight spike that reverses by morning.

None of this is investment advice btw.

"Mr. Darling used to boast to Wendy that her mother not only loved him but respected him. He was one of those deep ones who know about stocks and shares. Of course no one really knows, but he quite seemed to know, and he often said stocks were up and shares were down in a way that would have made any woman respect him."
— Peter and Wendy (Peter Pan / Tinkerbell), J. M. Barrie¹¹