The US Treasury’s decision to double its purchases of long-term bonds to $4 billion has drawn sharp criticism from banking experts and prominent investors, including billionaire Stanley Druckenmiller and JPMorgan’s James Sullivan.
The Treasury announced the move last week after the US 30-year yield hit a nearly 20-year high, triggering a short-lived rally that soon reversed.
‘You can’t buy your way out of a solvency conversation’
Stanley Druckenmiller, who worked with Bessent at George Soros’s fund management firm in the 1990s, said markets were “correct” to view last week’s announcement as “price management” and “a mistake”.
Druckenmiller, in an opinion piece published by the Wall Street Journal on Monday, said the long bond yield was the most important price in the world and intervening risked being sucked into even larger buybacks to defend it, as well as damaging credibility by departing from a reputation for reliability.
“These enlarged operations happen to run through the final stretch of a midterm campaign,” he said.
“Debt management that even appears to follow the political calendar spends the one asset that took two centuries to accumulate: the credibility of the Treasury market. That asset doesn’t regain its value so easily.”
“You can’t buy your way out of a solvency conversation with liquidity tools,” he said.
“What should happen instead is straightforward. Return buybacks to their stated purpose: small, scheduled…If the 30-year must trade at 5.5% to clear, that isn’t a crisis. It is an invoice. Then do the only thing that durably lowers long-term yields: address the primary deficit.”
“Governments defending prices against fundamentals always lose. The only variable is how much they spend before conceding.”
‘Paying mortgage with a credit card’
James Sullivan, JPMorgan’s co-head of global fundamental research, meanwhile, compared the action to ‘paying mortgage with a credit card’
“It can work for a while, but eventually the mismatch starts to become more obvious,” he added.
The move could help keep borrowing costs under control in the short term, but Sullivan argues it does not solve the larger issue: the huge and growing supply of government and corporate debt that still needs to be absorbed by investors.
“Governments trying to control markets is not a particularly attractive story most of the time.”
Even with strong economic fundamentals, the sheer increase in bond supply matters for markets, Sullivan said. More debt needs to find buyers, potentially requiring issuers to offer investors more attractive yields.
“The only way you balance supply and demand is through price,” he said. That equation is becoming more complicated as some traditional buyers of U.S. government debt pull back.
