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America’s treasury secretary has a diagnosis for the country’s rising borrowing costs: the bond market has a “fever” caused by speculators, and official buy-backs can help restore equilibrium. The article argues that this gets the problem backwards. Treasury yields are high not because the market is broken, but because it is responding rationally to a government that is borrowing heavily while pursuing policies that add to inflation risk.

A very small stick

Scott Bessent announced in August that the Treasury would expand purchases of its own long-dated debt. It offered to buy up to \$6bn of bonds on September 9th and planned near-weekly purchases of tranches worth at least \$4bn. The scale is tiny beside roughly \$40trn of gross federal debt. Since the announcement, the ten-year Treasury yield rose from 4.65% to above 5%, its highest level since 2007.

Buy-backs can help when a government-bond market truly seizes up. Because sovereign debt underpins so much of the financial system, disorderly trading can spread quickly. That is why the Federal Reserve intervened in early 2020, when the rush for cash caused even Treasury prices to collapse, and why the Bank of England supported the gilt market after Britain’s 2022 mini-budget threatened pension funds.

The present market looks nothing like those episodes. A September auction of \$22bn in 30-year Treasuries attracted bids worth more than two and a half times the amount offered, with non-dealers accounting for 98% of competitive bids. Measures of default insurance show little fear that America will fail to pay, and the MOVE index of expected bond-market volatility remains well below its post-pandemic peak. Investors are still willing to buy; they simply demand a higher return.

The price of policy

Today’s yields are not extraordinary by historical standards. Before the financial crisis, ten-year Treasuries averaged about 5% and 30-year bonds 5.4%. What has changed is the quantity of debt to which those rates apply. With one month left in the fiscal year, the Congressional Budget Office estimated that the federal government had already borrowed nearly \$2trn, or 6.3% of GDP.

The government is also taking actions that can keep inflation elevated, including tariffs and war in Iran. Inflation erodes the real value of fixed bond payments, so investors compensate by asking for higher yields. Their response is evidence of functioning price discovery, not a speculative attack.

That leaves the Treasury with an unpleasant but straightforward conclusion. Its interest bill is becoming harder to bear because the debt pile is enormous and new borrowing remains rapid. Small buy-backs cannot intimidate a market of this size. The durable way to reduce borrowing costs is to slow the accumulation of debt; blaming bondholders merely avoids the source of the problem.