Treasury Secretary Scott Bessent is increasingly putting his market credibility on the line as he attempts to navigate a turbulent financial environment shaped by the Iran war, currency volatility and rising U.S. borrowing costs.
Speaking Tuesday at Southern Methodist University, Bessent delivered a direct message to currency traders—and, indirectly, to investors in the Treasury market.
“I am the house now,” Bessent said, arguing that his position gives him significant insight into the actions of Japanese officials and the Bank of Japan. “And you can bet against me if you want.”
Some investors appear willing to take him up on that challenge.
In late July, the United States worked alongside Japanese officials to support the yen after the currency came under pressure. Although preventing a selloff in Treasuries was not the stated purpose of the intervention, investors had been watching closely for the possibility that Japan could sell U.S. government bonds to raise funds and stabilize its currency.
Such selling could put upward pressure on Treasury yields because bond prices and yields move in opposite directions.
The intervention appears to have helped stabilize the yen. The currency strengthened against the dollar and reached a nearly seven-month high in Asian trading this week—a development likely welcomed by Bessent, who has previously described the yen as undervalued.
Treasury Yields Continue to Rise
The bigger challenge for Bessent may be the Treasury market.
With roughly $32 trillion in outstanding securities, the Treasury market plays a central role in global finance. It finances the U.S. government, influences borrowing costs throughout the economy and remains one of the world’s primary safe-haven markets.
So far, however, Bessent’s efforts have done little to stop the recent rise in yields.
The Treasury Department announced Wednesday that it plans to purchase up to $6 billion of Treasury securities with maturities between 10 and 20 years. That is above the $4 billion minimum purchase level announced the previous month.
The Treasury has described the buybacks primarily as a way to improve liquidity and market functioning. However, additional demand for longer-term bonds could also provide some downward pressure on yields.
Instead, yields continued climbing.
On Thursday, yields across the 10-, 20- and 30-year Treasury sectors moved higher. The benchmark 10-year Treasury yield reached 4.93%, its highest level since 2023 and just below the psychologically important 5% threshold.
The market may be willing to test Bessent’s resolve, according to Thomas Kikis, head of markets for the U.S. and Americas at Standard Chartered.
“Normally, when these red lines are put out, people like to test them,” Kikis told Fortune. “The market’s gonna give him a bit of a run over the next few days.”
White House spokesperson Kush Desai pointed to Bessent’s previous market interventions, including his involvement with Argentina’s peso, as evidence of his ability to influence financial markets.
The $40 Trillion Problem
A sustained increase in Treasury yields would have significant consequences for the federal government.
Higher yields mean higher borrowing costs for the government at a time when U.S. national debt has climbed to approximately $40 trillion.
Bessent has previously argued that economic growth can help address the country’s enormous debt burden. In an interview last month on CNBC’s Squawk on the Street, he dismissed concerns over the size of the debt by saying, “we can grow our way out of that.”
Kikis said that outcome may not be impossible.
The continued expansion of the economy, combined with productivity gains associated with artificial intelligence, could provide support for corporate earnings and broader economic growth. Businesses Kikis has spoken with, he said, continue to demonstrate strong growth and adapt their operations despite disruptions to energy markets and global trade.
But the recent volatility in Treasuries could indicate that Bessent’s ability to influence markets through rhetoric alone is reaching its limits.
Kikis suggested that if Washington wants to exert more meaningful downward pressure on long-term yields, investors may ultimately need to see more substantial action on government spending.
Inflation Adds Another Challenge
The bond market’s recent moves are also occurring against a backdrop of renewed inflation concerns.
Brent crude oil prices settled above $100 per barrel this week, reaching their highest level since May. Higher energy prices could put additional pressure on inflation expectations, potentially making investors less willing to hold long-term government debt at current yields.
At the same time, the Federal Reserve has been emphasizing a less forward-guidance-heavy approach to monetary policy. That has left some investors looking increasingly toward Bessent and the Treasury Department for clues about Washington’s broader views on interest rates, Treasury yields and financial markets.
Bessent’s recent success in helping stabilize the yen, combined with his reputation from his career as a hedge fund manager, may give him some additional credibility with investors.
But the Treasury market represents a much larger challenge.
As Kikis put it, the bond market could ultimately become the clearest test of how much influence Bessent’s words and actions can have.
“We’ll see how far his power of influence carries,” Kikis said. “I think the bond market will be the ultimate test.”
