If bond buyers lose confidence, they’ll demand even higher yields. Bessent better watch out with his games.

By Wolf Richter for WOLF STREET.

Bessent is playing games with the hugely important bond market, trying to fool the buyers and sellers with his two hocus-pocus shows – the big kahuna joint US-Japan yen intervention at the beginning of August, and the announcement of the doubling of the Treasury buybacks on Wednesday. Those two shows were designed to push down long-term Treasury yields. But the bond market doesn’t want to be played with. It has bigger problems. Real problems.

This time, the hocus-pocus show worked for only one day. And that effect was wiped out in two days. Long-term Treasury yields have now fully re-gained the drop on Wednesday.

The 30-year Treasury yield rose by another 4 basis points on Friday to 5.27%, having in two days regained the entire 10-basis-point hocus-pocus drop on Wednesday. On Monday, the 30-year yield had gone over 5.30%, the highest since June 2007, more than wiping out the effects of Bessent’s first hocus-pocus show, and it had spooked Bessent, and rattled, he came up with the second hocus-pocus, which has now also flopped.

It took the bond market only two days to undo the one-day effect of Bessent’s second hocus-pocus show in August. It had taken the bond market almost two weeks to undo the effect of Bessent’s first hocus-pocus show at the beginning of August. If there is a third hocus-pocus show, the effect may be gone in one day (and we’ll start labeling them Hocus-Pocus 1, Hocus-Pocus 2, etc. to be able to keep track of them).

The chart below shows the last 14 years of the 40-year bond bull market (when yields fall, bond prices rise), and the first 6 years of the bond bear market (when yields rise, bond prices fall).

Investors who bought these low-interest-rate long-term bonds at Treasury auctions in 2020 and 2021 are sitting on huge losses, in some cases exceeding 50%, in terms of the market value of these bonds.

And the effects of the two hocus-pocus shows were so minimal and brief that they get lost in the regular bond-market squiggles.

The 10-year Treasury yield rose by another 5 basis points on Friday to 4.74%, having regained the entire hocus-pocus drop on Wednesday, and is just 1 basis point short of July 31 (4.75%), on the eve of Bessent’s Hocus-Pocus 1, and that had been the highest since January 2025. So back to square one.

But historically, yields are not high. Here we’re looking at the last four years of the brutal bond bear market through late 1981, the 40-year bond bull market through August 2020, and the six years of the current bond bear market.

Yields are only high in the context of the Fed’s interest-rate repression via QE which started in late 2008 to deal with the Financial Crisis.

What caused yields to rise over the past three months wasn’t some sort of market dysfunction that needed to be straightened out with a series of hocus-pocus shows.

No, it was that the government had to sell $1 trillion of new bonds to investors over the past three months to fund the new deficits, and those buyers demanded higher yields to get enticed off the fence and buy this $1 trillion of new debt while at the same time refinancing the massive pile of maturing debt.

They demanded higher yields to overcome their triple-fears: Fears about future inflation and a lax Fed that will refuse to crack down on it (which wipes out the purchasing power of long-term bonds); fears about the unsustainable trajectory of the fiscal deficits (made even worse by the war in Iran and by the Supreme-Court-triggered tariff refunds); and fears about the flood of new debt that must find buyers at an eyepopping rate of $1 trillion every three to five months, come hell or high water.

In addition, the government is now competing with the AI investment mania that is also trying to find investors for bonds with much higher yields and much bigger risks.

And the market did its job and absorbed the $1 trillion in three months, and the higher yields made that possible.

But the higher yields that buyers demanded to buy this onslaught of new Treasury debt caused Bessent to blow a fuse.

What did he expect as $1 trillion in new debt must be sold every three to five months despite all the risks piling up around the market?

The solution would be fiscal consolidation. Most of that has to be done in Congress. But Congress has become a fiscal joke, as has the White House, handing out tax cuts left and right, and firing up spending, including on the war in Iran.

Bessent, lacking a real solution, came out with these hocus-pocus shows to push down long-term Treasury yields, and both were effective only for brief periods.

Bessent admitted in an interview with CNBC Thursday morning, the day after Hocus-Pocus 2, that a big part of the show was just jawboning the yields down. “Part of it is signaling here,” he said, using versions of the word “signal” multiple times during the interview.

Bessent is now the world’s biggest bond salesman. To fund the deficits that are decided in Congress, he’s got to sell these bonds, that’s his job, and he wants to do so at the lowest possible yield.

Think of him as a used-car salesman who absolutely has got to hit his quota, and he has got to get high prices (low yields), but the vehicles in inventory aren’t good enough to be sold at high prices, and customers are walking out, and he’s desperate and has got to do something to sell those cars, and so he puts up his hocus-pocus shows, instead of selling the vehicles at lower prices, but it doesn’t take long for these customers to see through the hocus-pocus, and then they get really worried because now they’re losing confidence.

If bond buyers lose confidence, they’ll demand even higher yields for the bonds that Bessent has got to sell. He better watch out with his games.

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the mug to find out how: