Bessent's $4 Billion Twist Can't Beat Double-Digit Money Growth

Treasury Secretary Scott Bessent doubled the department's bond buybacks to at least $4 billion last week, but double-digit money growth will torpedo the intervention, economists said. The Treasury is buying long-term debt to hold down longer-term yields while selling an equal amount of short-term paper, a new version of "Operation Twist" that flattens the yield curve.

"The history of such market interventions is littered with failures," said Steve Hanke, professor of applied economics at Johns Hopkins University. "Given Bessent's participation in the Soros raid on the pound in 1992, one would have thought that Bessent knew that markets have a way of outsmarting government officials."

The intervention arrives as the 30-year Treasury yield trades near a 19-year high and the 10-year yield approaches levels last seen during the financial crisis, with total U.S. debt crossing above $40 trillion for the first time last week. Broad money growth ran at nearly double-digit annual rates during the first half of 2026, a pace that Hanke and John Greenwood, a fellow at Johns Hopkins' Institute for Applied Economics, Global Health, and the Study of Business Enterprise, argue will overwhelm the Treasury's yield-curve engineering.

The stakes extend beyond the Treasury. Fed Chair Kevin Warsh, sworn in May 22, has watched higher long-end yields do the central bank's tightening work for it, with inflation running at a three-year high of 4.2 percent. If Bessent succeeds in pushing long yields down, the Fed may be forced to raise its federal funds target rate to restore price stability — a move that would draw the ire of President Donald Trump and risk halting the AI-driven stock rally that has carried the S&P 500 and Nasdaq Composite to fresh highs since June.

A History of Failed Twists

The Treasury's maneuver echoes three prior attempts, two in the U.S. and one in Japan, each of which foundered on the same fault line: whether monetary policy backed the operation. In 1961-65, U.S. authorities sought to lower long-term rates while attracting foreign inflows, but broad money growth (M3) accelerated from 3 percent to 10 percent, and bond vigilantes demanded higher yields that torpedoed the policy. In 2011, the Fed's twist succeeded only because it rode a surge in M2 growth from 4 percent to 10 percent that helped the economy escape the Great Recession. Japan's yield-curve control, run from 2016 to 2024, failed because the Bank of Japan bought securities mainly from banks, an asset swap that left money growth below 3 percent.

The Fed's Dilemma

For Bessent's version to work, monetary growth must be supportive — and it is not. The Treasury's capacity to intervene is also limited relative to the $40 trillion debt stock, even with a $950 billion Treasury General Account that CNBC reported could fund further repurchases. Bonds rallied Monday on that report, with the 30-year yield falling 0.04 percentage point to 5.23 percent.

Warsh, who has removed forward guidance from FOMC statements, is scheduled to speak Friday at the Jackson Hole Economic Policy Symposium. If he signals the Fed will tighten to offset the Treasury's easing, long yields could resume their climb; if he stays silent, inflation expectations may drift higher. Either path leaves Bessent's intervention fighting the bond market's arithmetic, with the 10-year yield's next move likely to set the tone for mortgage rates, corporate borrowing costs, and the dollar.

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