Bessent: Does the House really always win?

Bessent cannot reliably control Treasury and currency markets because knowing policymakers’ intentions does not reveal how markets will react when fundamentals have changed.

• Intervention is most defensible when liquidity failures or coordination problems impair price discovery, and when it reinforces rather than opposes fundamentals; the yen appears fundamentally cheap because purchasing-power measures show substantial undervaluation, Japan runs a sizeable current-account surplus, and interest-rate differentials have narrowed.
• The US fiscal deficit is about 6% of GDP, while price-sensitive investors now represent roughly three-quarters of Treasury ownership, up from just over half in 2016.
• AI-related bond issuance had reached $380.5bn by mid-August, increasing competition for capital; MIT estimates that the cost of absorbing additional Treasury debt rose from about 80bps in 2015 to 187bps today.
• Long-term government bond yields have risen across major developed markets, mainly because of higher real rates, suggesting that higher Treasury yields reflect increased compensation for changed fundamentals rather than market dysfunction.
• Treasury measures have struggled to reverse the trend: the expansion of long-dated buybacks to $6bn announced on 9 September was followed by the 10-year Treasury reaching its highest yield since 2023, while the 30-year yield returned to its pre-August-buyback level.

Takeaway: Bessent’s interventions may influence near-term pricing, but investors should not assume that privileged knowledge of policy actions translates into an ability to defeat market fundamentals or predict market outcomes.