MeidasTouch Chief Economist Justin Wolfers joined co-founder Ben Meiselas to break down the turmoil in the U.S. bond market and explain why Treasury Secretary Scott Bessent’s increasingly aggressive rhetoric may be creating a problem of its own.
The immediate issue is rising Treasury yields. The Treasury recently announced it would buy back as much as $6 billion in longer-dated government debt, triple the previously planned amount. But investors were unimpressed. Yields rose following the announcement, with the benchmark 10-year yield reaching 4.85% as the market continued to grapple with inflation and federal debt concerns.
Wolfers told Meiselas that the fundamental problem goes beyond any single buyback.
“A big part of the reason interest rates are going up is they see that the debt is large, the deficit is large, so the debt’s getting bigger, and this administration’s not at all serious about the deficit,” Wolfers said.
Bessent’s $6 billion intervention also looks relatively small against the roughly $32 trillion market for publicly traded Treasury securities. Wolfers compared the scale of Bessent’s intervention to “throwing pennies and quarters” at the market. Reuters similarly reported that investors remained unconvinced after the Treasury tripled its planned long-dated buyback.
But Wolfers said the bigger danger is credibility.
“It’s deeply important for someone in the government to be able to tell people the truth,” Wolfers said, explaining that markets need to believe government officials will actually follow through on what they announce.
Wolfers contrasted the traditional maxim to “speak softly and carry a big stick” with Bessent’s recent approach.
“What Scotty B has been doing instead is he’d been bellowing loudly,” Wolfers said, before describing him as “carrying a wet noodle.”
Bessent has recently adopted an unusually combative posture toward investors, including declaring “I am the house now” and dismissing critics as “Bloomberg Terminal bros.”
Wolfers warned that repeatedly making threats or promises without convincing markets that the government will follow through risks diminishing the power of future statements.
“The economics of this is all about credibility,” Wolfers told Meiselas. “If Bessent is interested in doing his job, he has to develop credibility.”
And Wolfers ended with an even sharper warning about the potential cost.
“Every time he’s doing that, he is taking the hard-won credibility of the United States and just destroying it.”
Watch Ben’s full conversation with MeidasTouch Chief Economist Justin Wolfers above as he breaks down rising Treasury yields, Bessent’s bond buybacks and why credibility can be one of the most powerful tools an economic official has.
