Before becoming Treasury Secretary when Donald Trump returned to the White House last year, Scott Bessent had a long career as a hedge-fund manager. In 1992, a twenty-nine-year-old Bessent was working in the London office of the investor George Soros’s fund when the British Treasury was trying to prop up the value of the pound. Soros and his team believed that the pound was greatly overvalued, and they figured that the Bank of England would eventually run out of foreign-currency reserves, which it was using to buy sterling in the foreign-exchange market. So they placed a huge bet against the pound—and they were right. On Wednesday, September 16, 1992, in a desperate effort to boost the value of the currency, the Bank of England raised interest rates by two per cent, and then, a few hours later, said it would raise them by a further three per cent. Rather than rushing to buy sterling, traders interpreted these actions as panic moves that wouldn’t stick. After the markets closed, Norman Lamont, the Chancellor of the Exchequer, announced that Britain would leave the European Exchange Rate Mechanism, and reversed the interest-rate moves. He was humiliated. Soros, Bessent, et al., were quids in. Their bet against sterling netted about a billion dollars in profit.

You would think that this experience would have taught Bessent the perils of tangling with the financial markets, but now, more than three decades later, he is in a high-profile tussle with bond traders over rising yields. Unlike Lamont, Bessent is largely signalling that the Administration wants lower borrowing costs, rather than drawing a firm line in the sand. Still, at a time of huge budget deficits, soaring indebtedness, and stubborn inflation, the consensus in the markets is that he’s unlikely to accomplish his goal. And his intervention could backfire if it undermines investors’ faith in the credibility and creditworthiness of the U.S. government.

In recent weeks, Bessent has made a number of dubious statements, including claiming that the K-shaped economy is over and that a deal to reopen the Strait of Hormuz could come in a day or two. But as he pointed out in a speech last November, his most important job is “to serve as the primary caretaker of the Treasury market,” where, on a weekly basis, the Treasury Department auctions off I.O.U.s backed by Uncle Sam that range in duration from four weeks to thirty years. (A bond’s duration is how long it will be outstanding before the government repays its owner.) But the bond market is a two-sided game. When purchasing Treasuries (effectively lending money to the U.S. government), investors, such as pension funds, hedge funds, and overseas governments, demand an annual return, which is ultimately determined in the market, where bond prices move in the opposite direction of yields. Recently, bond prices have been falling and yields have been rising, especially for Treasuries of longer duration. Since the end of March, the annual yield on ten-year Treasuries has risen from 4.32 per cent to 4.73 per cent, and the yield on thirty-year Treasuries has risen from 4.9 per cent to 5.28 per cent.

It’s easy to see why these developments could have set off alarms in the Trump Administration. Interest rates on mortgages, car loans, and other consumer credit are tied to rates on long-term bonds. Since the start of this year, fixed rates on thirty-year home loans have risen from about six per cent to about 6.75 per cent. With the midterms less than three months away, the last thing that Trump and Republicans up for reëlection want to see is further jumps in borrowing costs. From their perspective, anything that the Treasury Department can do to reduce them, or at least keep them steady, is helpful.

But there are powerful forces driving up bond yields. Begin with Trump’s heedless war in Iran and its accompanying energy shock, which have pushed up inflation and heightened uncertainty about the future. Add to that the fact that, since Trump returned to office, total public debt has risen by about $3.8 trillion, greatly increasing the over-all supply of Treasury bonds that investors have to digest. Finally, there’s the A.I. boom. To finance their A.I. investments, Big Tech companies such as Alphabet, Amazon, and Oracle are issuing hundreds of billions of dollars in corporate bonds, which, to some extent, compete with Treasury bonds for investors’ money.

Last week, as yields hit their highest levels since 2007, Bessent could have cited fundamental factors affecting the bond market. He also could have pointed out that long rates are still well below the levels seen during the tech boom of the late nineteen-nineties, and that, so far, there is little indication that they are dragging down the economy at large. (A real-time estimate of G.D.P. growth maintained by the Atlanta Federal Reserve’s GDPNow shows the economy expanding at a healthy rate of four per cent in the July-to-September quarter.) Instead, Bessent surprised the markets by announcing that, starting next month, the Treasury Department, as part of its ongoing bond-issuance program, will double its buybacks of long-term bonds. (The Treasury regularly repurchases certain bonds from investors and retires them.) For a day or so, investors seemed impressed by this scheme, which was clearly designed to reduce the supply of long bonds and lower their yields: the yields on thirty-year Treasuries fell from 5.29 per cent to 5.19 per cent. But things quickly turned around, and by the end of the week they had rebounded to 5.28 per cent, virtually the same level they were at before the announcement of the expanded buybacks.

This reversal wasn’t surprising. The Treasury Department said that it would double its buybacks, from two billion dollars to at least four billion dollars. But these sums pale next to the enormous bond issuance, across all maturities, that is necessary to fund a deficit which, in the first ten months of fiscal 2026, totalled $1.8 trillion. According to an analysis in the Financial Times, in the third quarter of this year alone, the Treasury was previously scheduled to issue more than a hundred billion dollars in twenty- and thirty-year bonds. Traders now expect the department to switch to issuing more shorter-term bonds, but the yields on those have been rising, too, and analysts at ING commented that Bessent’s scheme amounts to “rearranging deck chairs on the Titanic.”

As yields rose again late last week, Bessent told reporters that they would come back down as traders came to realize that “we are focusing on fiscal consolidation” and restoring “equilibrium” to the market. This statement flew in the face of reality. A few months ago, the Trump Administration published a budget requesting $1.5 trillion for the Pentagon, an increase of more than forty per cent. As the midterms approach, Trump is boasting about all the tax cuts that Congress pushed through last year in his “Big Beautiful Bill.” There’s a term for raising spending and cutting taxes when the economy is chugging along, but it’s not fiscal consolidation; it’s fiscal recklessness. According to the latest estimate from the Congressional Budget Office, the deficit for the full fiscal year of 2026, which ends next month, will be $2.1 trillion, a jump of three hundred billion dollars compared with last year.

All this raises the question of why Bessent would challenge the markets in the way he has. One possibility is that he genuinely believes that bond traders have lost the plot, but that hardly jibes with the conservative shibboleth that markets generally get things right. It also clashes with the argument of the new Fed chair and fellow Trump appointee Kevin Warsh—with whom Bessent eats breakfast each week—that policymakers should take guidance from the judgment of the markets. Conceivably, Bessent could be right; conceivably, Warsh could be right. They can’t both be right.

The cynical explanation is that the Treasury Secretary is playing politics. It isn’t just the sight of rising mortgage rates that is alarming Republicans. At this stage, the strength of the stock market is Trump’s strongest economic card. But financial markets are interconnected. If bond yields keep rising, the selling in the bond market could spill over into the stock market. That’s another reason for Bessent to target lower yields.

But this raises another, more fundamental, question: Can a Treasury Secretary wielding a small water hose succeed in dousing a fire that extends well beyond the U.S.? (In recent months, long-term bond yields have been rising in other countries, too, including Japan, Germany, and the United Kingdom.) The answer is likely no unless Bessent can persuade Warsh to direct the Fed’s much larger hose in the same direction—i.e., to get the Fed to step up its purchases of Treasury bonds, a policy known as quantitative easing (Q.E.). But the Fed has been winding down Q.E., which it ramped up during the COVID era to support the economy, and Warsh has been a vocal critic of the policy on the grounds that it distorts markets and creates dangerous dependencies. As it happens, the Fed chair is scheduled to deliver a major speech later this week, at a conference in Jackson Hole, Wyoming. Given the travails of Bessent, its contents will make interesting reading. ♦