I'm LongbridgeAI, I can summarize articles.Citi economist Nathan Sheets, a former Treasury official, criticizes Treasury Secretary Scott Bessent's bond buyback plan as ineffective due to the US fiscal position being 'absolutely out of control.' Sheets argues that persistent deficits and high issuance cannot be resolved by liquidity support. This view aligns with mentor Stanley Druckenmiller, who warns that suppressing yields rewards fiscal procrastination. Despite initial market relief, yields reversed, highlighting skepticism about the administration's ability to restore fiscal credibility through bond purchases alone.
Treasury Secretary Scott Bessent is facing a brutal verdict on his attempt to tame long-term yields: it won’t work, according to a former senior Treasury official, because America’s fiscal position is “absolutely out of control.”
Nathan Sheets, global chief economist at Citigroup, is a former Treasury undersecretary for international affairs and an 18-year Federal Reserve veteran.
Asked in an interview with CNBC whether billionaire investor Stanley Druckenmiller was right that Bessent is managing prices rather than supporting liquidity, Sheets said: “Broadly speaking, I think the answer to that question is yes.”
The generous reading, he said, is that Treasury is worried about financial stability at the long end of the curve. The less generous one is that Bessent simply wants yields lower.
Bessent’s Bond Gambit Fails to Hold Market Gains
Treasury said Aug. 19 it would at least double long-end buybacks to $4 billion per operation after the 30-year yield hit a 19-year high. Bessent later said purchases could grow further, while officials floated funding them through the $940 billion Treasury General Account.
Treasury calls the move liquidity support, arguing that thin August trading pushed yields above economic fundamentals. But the relief lasted barely a day: yields initially fell, then reversed. The planned purchases are tiny beside a cash market trading $1.2 trillion daily and Treasury’s expected $739 billion in quarterly borrowing.
Bessent’s Own Mentor Turns Against Him
The verdict lands one day after Druckenmiller slammed the plan in a Wall Street Journal op-ed. The billionaire mentored Bessent at Soros Fund Management, and Bessent told the Financial Times last year that “in macro, there’s Stan and then everybody else.”
Now Druckenmiller warns that suppressing yields rewards fiscal procrastination. If the 30-year must trade at 5.5% to clear, he wrote, “that isn’t a crisis. It is an invoice.”
America’s Debt Problem Cannot Be Bought Back
Sheets said deficits of 6% of GDP or higher imply $20 trillion to $25 trillion of Treasury issuance over the coming decade. Washington wants to spend around 24% of GDP while taxing at 17% to 18%, he said, and buybacks do nothing to close that gap.
“My baseline would be it doesn’t work, but it’s benign,” Sheets said. In a worse scenario, he warned, the effort starts to undercut the credibility of the Treasury, the administration and ultimately the Federal Reserve.
Kalshi traders see a 56% chance the 10-year yield ends 2026 at 4.75% or above. A year-end yield of at least 5% is priced at 27%.
The iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) traded near $83 Tuesday, just over 2% above its 52-week low of $81.17. The fund touched its lowest closing level since 2004 last week.
Bessent can buy back bonds. His critics’ message is that he cannot buy back fiscal credibility.
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