The US Treasury Secretary, Scott Bessent, played down recent concerns about the selling of US bonds in the market and denied speculation of significant foreign selling of US bonds.
As the trade war between the US and China escalated, there have been widespread speculations that Beijing would increase the selling of its holdings of US Treasury bonds. Last week, the US ten-year Treasury yield recorded its largest weekly gain since 2001, causing investors to be on edge and worried that a large-scale bond sell-off could disrupt the market.
On Monday (April 14th), Bessent, in an interview with Bloomberg in Buenos Aires, Argentina, pointed out that the foreign demand for the 10-year and 30-year US Treasury bonds in last week’s auctions had not decreased, but rather increased. He reiterated that “the significant drop in US bond prices in this round is mainly due to institutional deleveraging.”
He stated that there is currently no evidence to suggest that foreign sovereign entities are behind the scenes.
Bessent emphasized that the bond sell-off last week was far from reaching a level where the US Treasury Department would need to intervene. If necessary, the US has a vast policy toolbox that can be used at any time, including a Treasury Department repurchase program for old bonds.
“If we are willing, we can increase the repurchase size,” he said.
The Treasury Secretary stressed that the US Treasury Department has sufficient “policy tools” to address abnormal market volatility and imbalance in the US bond market.
Having previously served as a top hedge fund manager on Wall Street, Bessent shared a lesson he learned in his career, which is “not to focus too much on what happens within a week” (referring to short-term volatility).
He mentioned the 1998 collapse of Long-Term Capital Management due to turmoil in the US bond market, attributing the incident to excessive leveraging by investment institutions.
When interviewed by Fox News in early April, Bessent also mentioned that the US bond market is undergoing an uncomfortable yet normal “deleveraging” process and that there is no systemic issue.
“The market is currently experiencing a deleveraging shock,” he said. He stated that such phenomena were common during his decades-long career in hedge funds.
He explained that as some large highly leveraged investors incur losses and are forced to deleverage, there will be instances of selling fixed-income market products.
Bessent pointed out that as investors deleverage, “the market will gradually return to calm,” noting that “this is something that happens every few years after a period of leveraged accumulation.”