In the news dated August 23, 2026, due to the continuous rise in the US Treasury bond yields, US Treasury Secretary Scott Bessent has taken the approach of repurchasing government bonds to lower the yields, alleviating the government’s financing burden. Wall Street institutions and analysts believe that this may have an impact on the stock market and the policies of the Federal Reserve.
In the past two trading days, Bessent has stated that the size of long-term bond repurchases has been increased to at least $4 billion, and has clearly stated that the future single operation size may be even larger to curb the rising Treasury bond yields.
Currently, the 2-year Treasury bond yield, which is most sensitive to changes in the Federal Reserve’s short-term policy rates, is around 4.23%; the 10-year Treasury bond yield, considered as the anchor for global asset pricing, has reached around 4.74%; and the 30-year Treasury bond yield, reflecting long-term inflation expectations and government fiscal debt pressure, is around 5.25%, reaching the highest level in nearly 20 years.
Wall Street believes that the US Treasury’s bond repurchases signal significance greater than their actual impact, as the repurchase scale has little effect in the face of the total debt size of $40 trillion.
Goldman Sachs stated that the US Treasury is more willing to use unconventional tools to support long-term bonds. Just like the overall trend of Japanese government bonds and recent interventions in the yen exchange rate, if the fundamental macroeconomic driving factors are not addressed, the impact of these actions may only be temporary.
J.P. Morgan believes that the government intervention in the bond market is somewhat akin to paying a mortgage with a credit card, which may be feasible in the short term. However, fundamentally, it does not solve the larger structural problems, as the continuously expanding government and corporate debts still need to find a solution.
The capital markets are also monitoring the effects of the US Treasury’s bond repurchases. According to a report by the First Financial News on August 22, Arthur Budaghyan, Head of the Core Macro Platform at global investment research firm BCA Research, stated that “Bessenomics” seems capable of reducing core real interest rates but cannot control term premiums and inflation expectations.
Budaghyan explained that the strategic core of “Bessenomics” lies in stimulating economic growth and stabilizing public debt by lowering interest rates. If the 10-year US bond yield remains high due to term premiums and inflation expectations, crossing 4.5% and maintaining high levels in the short term, it will fail to prevent a collision between the stock and bond markets. As bond yields peak in stages, market risk appetite significantly declines, leading to a large-scale shift of funds from risky assets to safe-haven assets (especially bonds).
According to Bloomberg, former New York Fed President Bill Dudley, on August 20, stated that US stock valuations are clearly in bubble territory. Dudley pointed out that the Schiller cyclically adjusted price-to-earnings ratio for stocks is currently at 41, while the long-term average is around 17. The excess return on stocks (i.e., the portion of expected stock returns above risk-free bond yields) is currently about 1.1%, less than half of the average level since 2010. The Buffett Indicator (the ratio of US market capitalization to GDP) is currently at 240%, indicating overvaluation when this ratio exceeds 100%.
It is worth noting that in the biannual monetary policy report, the Federal Reserve issued a clear warning on asset prices. The report emphasized that valuations in various markets, including stocks, corporate debt, and residential real estate, remain high relative to fundamentals.
Blake Gwinn, Director of Rate Strategy at the Royal Bank of Canada, told Bloomberg that part of the reason the Federal Reserve is holding steady is that the rise in long-term bond yields has replaced Fed rate hikes. Therefore, if the Treasury successfully lowers yields, theoretically, the urgency for the Fed to raise rates will increase.
Krishna Guha, Vice Chairman of Evercore ISI, also believes that when investors perceive Bessent as managing long-term bond yields, it is difficult for the Federal Reserve to argue that market prices can fully reflect economic and monetary policy prospects.
The Federal Reserve’s meeting minutes released on August 19 indicated that more officials are in favor of raising interest rates. “Many meeting participants assessed that if inflation did not decline, tightening monetary policy might become necessary.”