The time Scott Bessent tried to outsmart the bond market

Scott Bessent joined the Trump administration last year armed with formidable experience in markets, the widespread respect of Wall Street and limitless confidence. Bessent has brought to his role as Treasury secretary and President Donald Trump’s point man on the economy the same swagger that famously allowed him to help George Soros “break” the Bank of England in 1992 by betting bet heavily against the pound. The trade forced the UK to abandon its efforts to prop up the currency – and netted Soros more than a billion dollars. Bessent has recently dared traders to cross him by boldly declaring, “I am the house now.” He’s dismissed criticism by saying if “some of the Bloomberg Terminal bros are unhappy with what I’m doing, well, that’s too bad.” And he’s promised to ease the cost of money by driving down bond yields. But his efforts to outsmart the bond market – the deepest and most important market on the planet – have not lived up to the hype. If anything, critics say his efforts have backfired. “The data is clear. He’s added accelerant to the fire. He’s had the exact opposite impact that he wanted,” said Tim Mahedy, CEO of Access/Macro and a former official at the Federal Reserve Bank of San Francisco and the International Monetary Fund. ‘Doomed to fail’ Early last year, Bessent said he wanted to lower the all-important 10-year yield below 4%. Instead, the opposite has happened, with the benchmark rate briefly climbing above 5.04% on Tuesday for the first time since 2007. With rates rising uncomfortably high last month, Bessent surprised many on Wall Street with a controversial intervention that ultimately tripled Treasury buybacks. But the plan has not been effective. Bond yields are higher now than before Bessent intervened, an increase that will make it more expensive for consumers to get a mortgage, mom-and-pop shops to get a small business loan and for Washington to borrow. “It massively flopped,” Hardika Singh, economic strategist at Fundstrat, an investment research firm, told CNN earlier this month. “If anything, this may have made the problem worse. Bessent showed his hand. To investors, it was like, ‘Oh my gosh, he’s worried.’ We should be too.” The Bessent move drew criticism from his mentor, legendary investor Stanley Druckenmiller, who penned an (AI-assisted) op-ed in The Wall Street Journal warning that efforts to suppress yields would backfire. Douglas Holtz-Eakin, a top economist under President George W. Bush, said Bessent’s move to control yields was “doomed to fail” because it didn’t address the elephant in the room: Trillion-dollar deficits as far as the eye can see. “I don’t think you can fool mother nature. You’ve got to fix the fundamentals,” said Holtz-Eakin, president of the American Action Forum, a center-right think tank. $40 trillion national debt Of course, America had a mountain of debt long before Bessent took office. Both parties share blame for the budget mess. But Trump and Bessent pledged to clean up that mess, in part by driving the federal deficit down to 3% of GDP. Instead, budget deficits are running at about twice that level – even though unemployment is low and the White House argues the economy is on fire. “They’ve made it worse. There’s no way around that,” said Holtz-Eakin. David Wessel, senior fellow in economic studies at the Brookings Institution, said the bond market intervention of this type would only work if there was A.) a serious problem in how markets are functioning and B.) it’s followed up by policies aimed at fixing the government budget. “But this isn’t a market-functioning-style emergency. It’s a politically inconvenient increase in yields,” Wessel said. Inconvenient because the higher bond yields go, the more out of reach the American dream is. Mortgage rates, which closely track the 10-year Treasury yield, are now at the highest level since June 2025. ‘Chaos policy’ Of course, Bessent has been dealt a tough hand and forced to defend Trump’s unpopular and, at times, inflationary, policies. Last year, his boss launched a global trade war that freaked out the bond market and undid progress on inflation. (Bessent is credited with convincing Trump last spring to pause those global tariffs, a move that set off an epic rally in bonds and especially stocks). This year, his boss waged a military war with Iran that continues to exacerbate America’s cost-of-living troubles and rattle the bond market. “He’s been taken for a ride by Trump’s chaos policy,” said Access/Macro’s Mahedy. The other problem is that Treasury’s powers, while vast, are more limited than those of the Federal Reserve. Bessent’s bond market intervention appeared to take a page out of the Fed’s crisis playbook by creating a backstop to ease market jitters. That’s similar to what then-Fed chairs Ben Bernanke did during the 2008 financial crisis and Jerome Powell during the Covid-19 pandemic. “Bessent is trapped by the system. The Fed can just hit the ‘M’ button on the keyboard and create money out of thin air,” said Mahedy. “But Treasury doesn’t have that same power to create money. Bessent’s got to find it and what he’s promised are drops in the bucket.” Ed Yardeni, president of Yardeni Research, notes that the $6 billion in buybacks Bessent has promised are “little more than a rounding error” in the $32 trillion Treasury market. “The Bond Vigilantes are daring Bessent to use the bazooka in his toolkit,” Yardeni wrote in a note to clients last week. Daring the market to test him Even as the bond markets have moved against him, Bessent has continued his trademark confidence. Last week, Bessent defended his intervention in the Japanese currency market by warning traders he has intel they don’t. “I have asymmetric information… You can bet against me if you want,” he said at a fireside chat at Southern Methodist University. Holtz-Eakin expressed surprise at Bessent’s brash comments. “It’s unwise. He’s been on the other side. He broke the pound. You don’t bait people like that. It’s not a good move,” he said.