Using "Soros-style" to save U.S. bonds! Can Besant win the market by managing exchange rates and interest rates?

A person who once helped Soros bring down the Bank of England is now trying to use the same method to defend the U.S. Treasury bond market? This year, U.S. Treasury Secretary Scott Bessent has taken a series of unexpected market actions to bet his credibility on suppressing U.S. borrowing costs. According to Bloomberg, he has become "the most active Treasury Secretary in decades in intervening in the financial markets." Following the joint intervention in the yen by the U.S. and Japan, Bessent's latest move is to expand the buyback of U.S. Treasury bonds. The Treasury announced it would "at least double" the scale of buybacks for 10 to 30-year U.S. Treasuriesthis buyback plan was just announced two weeks ago. On the day the news broke, the yield on 10-year U.S. Treasuries fell by about 6 basis points, while that on 30-year Treasuries dropped nearly 9 basis points, and the U.S. dollar index also fell to a three-month low. The market's reaction confirms Bessent's judgment: he himself has publicly stated, "My job is to be the top bond salesman in the country, and U.S. Treasury yields are the barometer of success." From Pound Short Seller to Sentinel of the Bond Market To understand Bessent's strategy, we need to go back to 1992. That year, in his twenties, Bessent worked for Soros Fund, where he helped construct the short position on the pound. During "Black Wednesday," the pound was forced out of the European Exchange Rate Mechanism, and Soros made over $1 billion in profit. According to media reports, a former advisor described Bessent at the time as someone who "could see the market vulnerabilities that others could not." Afterward, he returned to Soros as Chief Investment Officer and led a $1 billion short position on the yen in 2013, once again reaping substantial returns. In 2015, he founded Key Square Capital Management with $4.5 billion, successfully betting on Brexit and Trump's two elections. This "find the cracks and push while the momentum is on your side" hunter logic has run throughout his entire hedge fund career. Now, he must use the same intuition to do the complete oppositedefend a market under pressure. This Year's Interventions: From Yen to U.S. Treasuries Bessent's moves this year have formed a clear chain of logic. The first step was the yen intervention. On July 31, the U.S. Treasury, in conjunction with Japanese authorities, entered the market to buy yen, marking the first direct intervention in the yen's exchange rate by the U.S. in nearly thirty years. According to data from the Peterson Institute for International Economics (PIIE), Japan used about $87 billion of its foreign reserves to buy yen in the last two days of July, with the U.S. Treasury "joining at the last stage, providing a relatively limited amount of funding but releasing important political support signals." Notably, the Treasury sold euros instead of dollars, and did so without prior notification to Eurozone authorities. There is an underlying tension here: Japan holds about $1.1 trillion in U.S. Treasuries, making it the largest foreign holder. If Japan were to finance the intervention alone, it could be forced to sell U.S. Treasuries, which would further drive up long-term yields. Washington's involvement lessened the need for Japan to sell some Treasuries, thereby indirectly preserving the yield curve that Bessent cares about most. The second step involved signals of contraction on the issuance side. Earlier this month, the Treasury hinted at a possible reduction in the issuance scale of long-term bonds, signaling to the market expectations of supply tightening. The third step was a ramp-up in buybacks. This week, it was announced that the long bond buyback scale would be at least doubled, directly bolstering prices from the demand side. Bloomberg quoted Brad Golding, a portfolio manager at Christofferson Robb & Co., who remarked that this resembles "an old-school 'clear the screen' technique"a method used by hedge funds that simultaneously places orders with several large dealers to trigger significant market volatility. Mark Sobel, a former U.S. Treasury official now at OMFIF, told Bloomberg, "He is definitely an activist, which brings to mind his hedge fund background." "He and this administration are obviously worried about rising long-term yields." Breaking "Rules and Predictability" Bessent's operations stand in direct conflict with the traditional principles of the Treasury. For a long time, the U.S. Treasury has adhered to a principle of "rule-based and predictable" debt management to avoid surprising the market. Bessent himself endorsed this principle publicly at a Treasury market conference last November. But now, his actions have diverged from that commitment. Gregory Faranello, head of U.S. interest rate trading and strategy at AmeriVet Securities, told Bloomberg, "This goes against the 'rule-based and predictable' principlebut that's the world we are in." "The signal is very clear: stop yields from rising." Ironically, Bessent's predecessor, Janet Yellen, also sought to suppress yields in 2023 by adjusting the structure of debt issuance, at which time Bessent was one of the critics, accusing the move of being politically motivated. Stephen Miran, a former chief economist under Trump, co-signed a paper in 2024 condemning "aggressive Treasury issuance operations" (ATI). According to Bloomberg, Miran and Nouriel Roubini wrote in that paper, "Once one party starts using ATI to stimulate the economy during election season, future governments may follow suit." Questioning: Can Intervention Solve Structural Problems? The market has reacted to Bessent's operations in the short term, but economists hold deeper doubts. In the first ten months of fiscal year 2026, federal net interest expenses have reached $963 billion, equivalent to about $31.8 billion per day, a 14% increase year-on-year. The yield on 10-year U.S. Treasuries is reported at 4.72%, and 30-year Treasuries at 5.31%a substantial number of previously issued bonds below 2% are now rolling over at higher rates. The deficit thus far in fiscal year 2026 is $1.8 trillion, a 5% increase from the previous year, with spending on Social Security, Medicare, defense, and debt interest all rising, while Republicans are also discussing further tax cuts. Robin Brooks, a senior fellow at the Brookings Institution, told Bloomberg directly, "This is not addressing the fundamental issuesreducing debt and compressing fiscal deficitsit's trying to manipulate the yield curve." BNY macro strategist John Velis also remarked, "Given the current spending policies and war, it will be very challenging to alleviate long-end pressure." The efficacy of the yen intervention is similarly in doubt. After reaching a peak of 163.98 against the dollar on July 23, the yen fell back to 159.43 by August 17, but according to CNBC reports, the intervention did not prevent the yen's continued weakness. PIIE's Maurice Obstfeld stated that the intervention had little effect and remarked, "Foreign exchange intervention is not a free lunch, and it's not even free cake." Guy Miller, chief strategist at Zurich Insurance, told Bloomberg, "This method can only be effective for a while. When the Treasury clearly states that it will continue intervening, it can have a substantial impact. But ultimately, if the profligate fiscal policies are not addressed, this is not sustainable." Peter Boockvar, chief investment officer at Onepoint Bfg, was even more direct: "He is waging a battle with two massive marketsU.S. Treasuries and foreign exchangethis is an exceedingly difficult fight." The Bet on Credibility Bessent's logic is quite clear in his own words. Last month, speaking about Trump's administration's holdings in tech and resource companies, he said, "What we want to do is create market signals." He stated on Fox Business, "Essentially, we are telling investors where the puck is going; skate there quickly." The problem is that shorting the pound in 1992 was about identifying a systemic weakness and exploiting it. Now, he faces structural pressures driven by fiscal deficits, inflation expectations, and Federal Reserve policiesnone of which can fundamentally change through buyback operations or exchange rate interventions. According to Bloomberg, Mark Sobel, who served in the Treasury for nearly 40 years, believes that Bessent is at least the most radical Treasury Secretary since the early 2000s, but he simultaneously characterizes the yen intervention as an unwise measure, arguing that it avoids the fiscal consolidation that the U.S. truly needs. This article is reproduced from "Wall Street Observer" and edited by Jiang Yuanhua of GMTEight.