Bessent's Bond Buybacks Won't Fix a $20 Trillion Debt Problem

Treasury Secretary Scott Bessent's plan to at least double long-dated bond buybacks to $4 billion per operation drew a blunt verdict from Citigroup's Nathan Sheets: it won't work because America's fiscal position is "absolutely out of control."

"My baseline would be it doesn't work, but it's benign," Sheets, global chief economist at Citigroup and a former Treasury undersecretary for international affairs, said in a CNBC interview.

The 30-year yield had touched a 19-year high before Treasury's Aug. 19 announcement, and the relief lasted barely a day. The iShares 20+ Year Treasury Bond ETF (TLT) traded near $83, just over 2 percent above its 52-week low of $81.17, after posting its lowest closing level since 2004 last week. The dip in long-term rates lifted gold, sending Newmont (NEM) up 7.9 percent Wednesday as the metal's appeal as a store of value strengthened.

Sheets said deficits of 6 percent of GDP or higher imply $20 trillion to $25 trillion of Treasury issuance over the coming decade, against planned spending of about 24 percent of GDP and tax revenue of 17 to 18 percent. Buybacks of $4 billion per operation are tiny beside a cash market trading $1.2 trillion daily and Treasury's expected $739 billion in quarterly borrowing.

A Mentor's Rebuke

The verdict lands a day after Stanley Druckenmiller, who mentored Bessent at Soros Fund Management, slammed the plan in a Wall Street Journal op-ed as "price management" and "a mistake far larger than $4 billion suggests." Bessent told the Financial Times last year that "in macro, there's Stan and then everybody else." Now Druckenmiller warns that suppressing yields rewards fiscal procrastination. "If the 30-year must trade at 5.5% to clear... that isn't a crisis. It is an invoice," he wrote.

Treasury calls the move liquidity support, arguing that thin August trading pushed yields above economic fundamentals. Bessent has said purchases could grow further, with officials floating funding them through the $940 billion Treasury General Account. The generous reading, Sheets said, is that Treasury worries about financial stability at the long end of the curve; the less generous one is that Bessent simply wants yields lower.

The Fed Boundary Test

The buyback program, launched in 2024 to support trading in older, less liquid securities, now risks blurring the line between the Treasury and the Federal Reserve. Bessent has also pressed the Fed to make more dollars available to foreign central banks to support Japan's yen defense, and taken an interest in who runs the Federal Reserve Bank of Atlanta. The FOMC is already divided, with three officials dissenting in favor of a rate increase last month. If Bessent's interventions succeed in lowering long-term borrowing costs, it "would definitely push most everyone on the FOMC further toward a rate increase," said Jon Faust, an adviser to the last three Fed chairs.

The tension echoes the 1951 accord that ended the Fed's wartime commitment to hold down Treasury yields and is treated as the origin of central bank independence. Fed Chairman Kevin Warsh, who takes the stage at Jackson Hole on Friday, has said the Fed should say less about its plans to get an unfiltered read from market prices. The risk now is that yields reflect Treasury's interventions rather than what investors think.

Kalshi traders see a 56 percent chance the 10-year yield ends 2026 at 4.75 percent or above, with a year-end yield of at least 5 percent priced at 27 percent. If the buyback plan fails to hold yields down, the pressure shifts to the FOMC, where three dissents already favor a rate increase. Bessent can buy back bonds, his critics say, but he cannot buy back fiscal credibility.

This article is for informational purposes only and does not constitute investment advice.