Scott Bessent, the U.S. Treasury Secretary, is facing a test from financial markets after repeatedly trying to warn investors that betting on pushing oil prices higher, weakening the yen, or driving U.S. Treasury yields up could be a mistake, because the government holds information about policy plans that investors do not yet know. He calls this advantage Asymmetric Information, and over the past three weeks he has publicly raised the concept at least four times, most recently on Tuesday when he went so far as to challenge investors to bet against him. Markets, however, have moved the other way, with Brent crude surging above $100 a barrel, pushing U.S. gasoline prices higher. Meanwhile, the 10-year U.S. Treasury yield, a key benchmark for mortgages and other borrowing costs, jumped to 4.85%, the highest in three years, after roughly two weeks of sustained selling in the bond market. The surge came even though the Treasury increased the size of its bond buyback program to hold down long-term yields, producing the opposite result. Mark Spindel, founder and chief investment officer of Potomac River Capital, said the market has called his bluff, noting that the high federal budget deficit combined with concerns about the Federal Reserve's ability to control inflation carry more weight for the market than Bessent's efforts. Michael Strain, director of economic policy studies at the American Enterprise Institute, said Bessent has tried three times to move long-term bond yields in the direction he wants without success, and that this is starting to erode the Treasury Secretary's credibility. Strategists at Bank of America see the larger bond buyback program as possibly just the start of more aggressive policy to limit the rise in long-term bond yields, with some analysts expecting Bessent to add measures if the 30-year Treasury yield approaches 5.3%, after that yield stood at 5.29% late Wednesday. Strategists at Citigroup said investors should not overlook the Bessent Put, or the possibility that the Treasury will step in to support the market if conditions worsen. Key factors driving both oil prices and bond yields higher include the U.S. budget deficit and the war with Iran, factors over which Bessent has only limited control. The Trump administration is facing a budget deficit of nearly $2 trillion along with an energy shock from the Iran war, and both factors have pushed U.S. bond yields steadily higher over the past six months. Still, Bessent's interventions have not been entirely unsuccessful: cooperation with Japan to support the yen helped the currency strengthen rapidly and may ease pressure on Japanese authorities to sell U.S. Treasuries to raise dollars to defend their own currency. Nathan Thooft, chief investment officer of the Multi-Asset Solutions team at Manulife Investment Management, said Bessent still has enough credibility, policy tools, and market influence to make investors think carefully before placing large bets against him.
Bank of America Corp
Manulife Financial Corp
Citigroup Inc.