Druckenmiller, Bassett's "mentor," issues stern warning on bond market intervention: artificially suppressing yields is just "delaying subsidies" and unsustainable in the long run

According to Zhitong Finance APP, recent intervention measures in the bond market by U.S. Treasury Secretary Scott Bessent, while having pushed long-term yields down slightly, have also triggered increasing skepticism—critics argue these operations are unsustainable in the long term and could lead to dangerous consequences.

Wall Street generally doubts whether the Treasury has enough "firepower" to manage the fixed income market. The total amount of new U.S. Treasuries to be issued in 2025 has already reached about $4.8 trillion, and this figure is expected to rise further this year.

Bessent has proposed at least doubling the Treasury's buyback efforts for long-duration outstanding bonds. In addition, at the end of July, the Treasury intervened in the currency markets to support the yen, thereby preventing the Bank of Japan from being forced to sell U.S. Treasuries—a move that would likely push U.S. Treasury yields higher.

These efforts have dragged long-term yields down from recent peaks (the highest since before the 2008 global financial crisis), but market experts believe these measures are doomed to fail, especially as the U.S. has yet to tackle its fiscal predicament—with total federal debt just surpassing $40 trillion and the 2026 fiscal year budget deficit steadily approaching the $2 trillion mark.

The latest critic to join in is Stanley Druckenmiller, head of the renowned family office Duquesne Family Office, and more symbolically, Bessent’s mentor in investing. In the early 1990s, the two, along with George Soros, famously teamed up to mount a classic attack on the British pound.

Druckenmiller warns that, without fiscal discipline, forcibly suppressing yields does more harm than good to the market and also undermines the Treasury's credibility.

He wrote in a commentary: "If the 30-year Treasury yield needs to hit 5.5% for the market to clear, that’s not a crisis, that’s a bill. The only way to sustainably lower long-term yields is to solve the underlying deficit problem."

“Deferred Subsidy”

In his article titled "Let the Bond Market Speak," Druckenmiller urged Bessent to abandon the buyback plan announced on August 19 and let the market price Treasuries appropriately without government intervention.

He wrote: "Every 1 basis point by which yields are artificially lowered is a subsidy for delay. Once the market senses the Treasury is defending a particular price, every upward move in yields will be a test of official resolve, and intervention will have to be increasingly intensified to pass those tests."

He further pointed out: "Government efforts to defend prices against fundamentals have never succeeded. The only variable is how much they are willing to spend before giving up."

The Treasury did not immediately respond to a request for comment on Druckenmiller’s article.

Bessent’s initial plan is to at least double the Treasury’s conventional $2 billion buyback of “non-new issue” securities (previously issued securities)—a plan initiated by his predecessor Janet Yellen two years ago. In addition, Treasury sources revealed this week that the department may also draw on its $935 billion general account (TGA) to fund fixed income purchases.

However, the market remains doubtful whether even this path would be sufficient. The general account is essentially the Treasury’s “checkbook” for funding government operations, and it has been tapped during several congressional debt ceiling impasses; its use is limited.

Recent operations have been compared to previous Federal Reserve tools for providing liquidity and suppressing rates in the bond market. One is "Operation Twist," selling short-term Treasuries and buying long-term ones; another is quantitative easing (QE), where the Fed directly uses its resources to purchase fixed income assets.

The key difference is that, unlike the Treasury, the Federal Reserve is not constrained by limited cash balances and can create reserves to finance purchases.

The Fed’s Position

Ryan Swift, Chief Strategist at BCA, pointed out in a client report: "If the U.S. government truly wants to suppress yields, the Federal Reserve must be involved. Unless the Fed employs its balance sheet, any attempt by the U.S. government to suppress bond yields will fail. In fact, if investors begin to smell government anxiety, these moves could even backfire."

But Swift believes Federal Reserve Chairman Kevin Warsh is unlikely to intervene. During his brief tenure at the Fed, Warsh repeatedly emphasized the importance of allowing the market to discover prices on its own.

After the Fed’s July meeting, Warsh stated: “Market participants are learning to play with the ‘ball’ and not tangle with the ‘referee’—market prices will continue to respond in whatever direction and magnitude they see fit.”

Echoing other opinions, Swift sees nothing particularly worrisome about the recent rise in yields. He noted that, based on the Fed’s benchmark rate and market expectations for the central bank, combined with inflation, unemployment, and market volatility factors, the 30-year long bond yield is close to its “fundamental fair value.”

Currently, the 30-year Treasury yield is only slightly higher than its 50-year average (about 5.16%); as of early Tuesday, the benchmark 10-year Treasury yield is exactly equal to the historical average of 4.64% since the early 1960s.

Nohshad Shah, Head of EMEA Fixed Income Sales at Citadel Securities, wrote: “The signal from the bonds market is straightforward: fiscal or monetary policy should be tightened further. Preventing Treasuries from clearing at lower prices does not wipe out that pressure… it merely shifts pressure elsewhere.”

The Federal Reserve will have a say at its September 15-16 policy meeting. According to CME Group estimates, the market currently prices in a roughly 40% probability of a rate hike in September. Warsh will speak Friday at the Federal Reserve’s annual Jackson Hole conference in Wyoming, where he may address Treasury-related topics.

Krishna Guha, head of economics and central bank policy at Evercore ISI, said Warsh may try to avoid getting involved. He wrote: "It will not be easy for Warsh to calm the markets without contradicting Bessent’s unconventional operations; he may choose to remain silent."