Bessent flags bigger debt buyback potential, coming fiscal plan

US TREASURY Secretary Scott Bessent said that he is prepared to expand efforts to buy back costlier debt and that the administration will be unveiling a new fiscal initiative to address the highest borrowing costs in years.

“We are announcing probably at the end of this week, beginning of next week, an increased focus on fiscal consolidation,” Bessent said in an interview on Thursday (Aug 20) on CNBC.

He told reporters separately that US President Donald Trump had tasked himself and Budget Director Russ Vought in that initiative.

Bessent spoke after the Treasury Department said on Wednesday that it would increase “by at least double” the size of buybacks for longer-dated securities.

Thursday, he explained the move – which came as a surprise to market participants – was intended to ensure orderly trading in a “thin” summer market, and to get investors to focus on “fundamentals”.

The impact in the market was short-lived, with US 30-year bonds erasing gains on Thursday. Ten-year rates were also up on the day.

The Treasury chief played down Thursday’s market moves, saying “anything that happens within a 24-hour period is noise”. And he highlighted that the expanded buyback operations “could be more than the US$4 billion” size currently planned to start next month.

Asked how much more the Treasury is willing to do to get bond yields down, Bessent said, “We have a big toolkit, so we’ll see. And part of it is signalling here – to show that we believe that the yields don’t reflect the underlying fundamentals.”

Wednesday’s announcement followed 30-year Treasury yields reaching their highest in almost two decades, and 10-year rates getting to levels unseen since before Trump took office.

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“All we’re trying to do is get people to focus on the fundamentals and not trade the headlines during a quiet period in a thin market,” Bessent said.

Spending cuts

He did not suggest what “headlines” he was concerned about the market paying attention to. But on Wednesday, Treasury data showed that one broad gauge of US debt surpassed US$40 trillion for the first time.

Bessent also did not specify what the new fiscal push will involve. But he pointed to the potential for a fraud task force to save “hundreds of billions of dollars” and suggested that “a lot of these programmes that are being given to the states” are being “frittered away” and could be cut back.

“We are sceptical the administration can realistically do anything at this point on the deficit that would be material,” Sarah Bianchi, a chief strategist at Evercore ISI, wrote in a note on Thursday.

“The surprise buybacks announcement this week has had only a fleeting effect, and we think any deficit-related announcement would be at least as limited.”

Meantime, there is a “very good chance” the US has already seen a peak in the fiscal deficit, Bessent said.

He pointed to a revival of tariff revenue as the administration reconstitutes its import duty programs in the wake of the Supreme Court’s invalidation of much of the president’s levies from last year.

Energy and Iran

“It’s going to be a very exciting couple weeks, a couple months as we put this together,” Bessent said of the new fiscal plan.

Economic growth will allow the US to work down its debt burden, in Bessent’s view.

He said that while the recent wave of corporate debt issuance “is causing a short-term competition for capital”, it is also going to spur productivity growth over time. That in turn will spur a disinflationary expansion, he said.

“The underlying economy, I think, is very strong, and the only inflationary impulses that we’re seeing are coming from energy, which is temporary,” Bessent said.

Oil prices have been climbing again over the past few weeks as tensions rose with Iran. Nevertheless, Bessent echoed Trump’s claims that the Strait of Hormuz is under US control and cited media reports that “large amounts of energy are getting out”.

“We are going to collapse this regime,” Bessent said, referring to the new economic sanctions programme that Trump has ordered on Iran. “I’ll be holding a press conference on Monday to talk about exactly what we’re going to do.”

Asked about the greenback’s decline in the wake of Wednesday’s Treasury announcement, Bessent said, “We continue to have a strong dollar policy”.

“The dollar has been very stable,” he said. “The dollar had had a big run. Now, it’s going back to where it was a couple months ago.” BLOOMBERG