Prediction markets doubt Bessent's bond plan as 10-year yield holds 4.70%

Treasury Secretary Scott Bessent's unprecedented bond market intervention has failed to convince prediction market traders, who place 56 percent odds that the 10-year Treasury yield ends 2026 at or above 4.75 percent.

"This is not the cure to what ails the bond market. There are structural forces here at play that are really beyond the Treasury and the administration's control," Adam Phillips, managing director of investments at EP Wealth Advisors, said.

The 10-year yield traded at about 4.70 percent midday Monday, after spiking to 4.71 percent Thursday and erasing the declines that followed Bessent's Aug. 19 announcement to at least double Treasury buybacks of longer-dated debt to $4 billion per operation. The 30-year yield closed at 5.25 percent after touching 5.267 percent. Kalshi traders place just 27 percent odds the 10-year finishes above 5 percent, while Polymarket speculators give two-in-three odds the yield crosses 4.8 percent at some point in 2026.

The skepticism matters because Bessent has framed the buybacks as a tool to cap rising government borrowing costs, which have climbed as the national debt crossed $40 trillion, the U.S.-Iran conflict pushes oil prices higher, and the budget deficit is on pace to top $2 trillion for fiscal year 2026. If yields keep climbing, mortgage rates and consumer borrowing costs will follow, weighing on the broader economy.

Buybacks, the TGA, and the limits of intervention

Bessent's intervention marked a sharp departure from the Treasury's traditional "regular and predictable" debt management approach. The department announced it would at least double its liquidity-support purchases of longer-dated securities, from $2 billion to $4 billion per operation, beginning Sept. 9. CNBC reported Monday that the Treasury may consider using its Treasury General Account — approaching $1 trillion, with estimates around $950 billion — to help fund the expanded buybacks.

The TGA option changes the equation. Historically, Treasury buybacks can be offset by issuing more short-term bills, limiting their broader liquidity impact. Drawing down the TGA puts cash back into the financial system while Treasury purchases longer-dated securities, a more potent combination.

But JPMorgan Chase's global rates team warned the move could backfire. "Absent real fiscal consolidation, we fear the markets will view this action as lacking credibility, meaning this could contribute to higher term premium and yields over time should Treasury become more opportunistic in its approach to debt management," the team wrote in a note. ING analysts compared the intervention to "rearranging deckchairs on the Titanic."

The dollar has already felt the strain. The dollar index, which measures the greenback against a basket of major currencies, fell nearly 1 percent since Wednesday morning. Evercore ISI analysts warned that "increased Treasury activism — if sustained — could also make the dollar less attractive."

Fiscal consolidation promise and cross-asset fallout

Bessent told CNBC that a new fiscal plan would be announced "at the end of this week, beginning of next week," with himself, President Trump, and budget director Russell Vought examining both government expenses and revenues. He said there's a "very good chance" budget deficits have peaked under the current administration.

The government's outstanding debt has risen by more than $3.8 trillion since Trump began his second term in January 2025. Interest payments on the national debt are on track to surpass Medicare as the government's single greatest line-item expense.

The bond market stress has rippled across assets. Gold climbed about 7 percent to roughly $4,730 an ounce since the Aug. 19 announcement, as lower long-term yields reduce the opportunity cost of holding the non-yielding metal. Bitcoin jumped 24 percent to nearly $80,000 over the same period. Meanwhile, the S&P 500 fell 0.8 percent Thursday, the Nasdaq Composite dropped 1 percent, and the Dow lost 700 points, or 1.3 percent, as yields resumed their climb.

Oil prices added to the pressure. WTI crude briefly touched $89 per barrel Thursday before closing at $87.83, up 2.3 percent, while Brent closed at $93.78. The national average gas price rose to $4.10 per gallon. Bessent announced a news conference Monday to outline economic pressure on Iran, which he called "the greatest coordinated economic isolation in the history of the world."

The last time long-term yields reached these levels, in 2007, the 10-year yield peaked near 5.3 percent before the financial crisis forced the Fed into aggressive easing. Whether today's intervention marks a similar inflection point or merely a pause in the climb depends on whether Bessent's promised fiscal consolidation materializes with actual spending cuts.

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