Tell me if you've heard this one before...
Old Low-Rate bonds sat on a wall,
Old Low-Rate bonds had a big fall.
With all the bank’s cash & a shiny new loan,
They traded cheap debt for a high-interest throne.
They thought it was smart to pay off the old,
And borrow new bucks wrapped in shiny fake gold.
So the interest piled high & the wallet grew thin,
No matter the duration, the Treasury-man wins!
⚠️ Warning: Swapping cheap debt for expensive debt is a wealth-degrading trap for US.
That sneaky bugger...
Yield curve control & duration management are financial repression tools that Bessent has employed (like Yellen before him) against a backdrop of fiscal dominance & political expediency.
That doesn't mean the long-end rising on war, inflation & supply issuance concerns is fixed!
And that doesn't mean a Protracted/Escalating regional Middle East War risk is falling!
But it is curious that Bessent chose THIS day to intervene as the selling under the surface kicked in Mon & bullish AI news couldn't bolster buying & bear steepener picked up speed (as warned).
Algos triggered a bond, gold, equity pump off an announced $4B Treasury refunding announcement of buying Sept 9 - Nov 4th, but let's face facts: size matters & Bessent is gonna need a bigger boat. "Liquidity support" in the form of buyback operations in the long-end is not nearly enough to satisfy growing issuance.
But... it **could** affect a big, important reaction:
A flattening of the yield curve can drive real rates lower which is stimulative - along with lower USD - if it sticks.
Add to that, **IF** inflation expectations FALL with mortgage spreads, then a normative Fed rate CUT could be back on the table. 🤯
But I still think this will be super hard to do given lack of consensus on FOMC board unless labor cracks hard. Also, as the future inflation from falling dollar will add to the difficulty.
But the backstop by Bessent does put my $SPX $8200 2026 (MarketWatch call Dec 30th 2025) in full view again on falling dollar. So we've got that going for us.