Analysis of U.S. Treasury Bond Strategies

What if robbing Peter to pay Paul became Peter and Paul robbing each other

to pay one another? Because that's what Scott Bessent

and the U.S.

Treasury Department did this week.

The financial press isn't calling them out, and worse, it's going to blow through

your wallet. Hi, I'm Jeff, editor of Global Intelligence Letter

and a financial

writer for more than 30 years, 17 of those at the Wall Street Journal.

On Tuesday, the yield on the 30-year Treasury bond hit

5.33%,

the highest number that bond has seen since George W.

Bush was in his second term.

So, Wednesday morning, Scott Bessent woke up

and decided to change the rules

mid-game. Bessent announced that Treasury would double the size of its

buyback of bonds dated 10 years to 30 years.

And yes, I know that to a lot of people, that's basically Greek as

interpreted by a Martian. So, in plain English, it means

that on Tuesday, the

investors who buy U.S. debt pushed yields higher than we've seen

in nearly

20 years, a sign that global buyers of U.S.

debt are demanding higher interest rates to take on the risk of a

country that's drowning financially. Bessent couldn't have that.

Those higher interest rates mean that the Treasury Department has to borrow

billions of dollars more just to afford the higher interest rate payments.

But borrowing even more money would likely mean the bond buyers would

demand even higher interest rates.

That's the exact debt death spiral I've been warning Global Intel

subscribers about since about 2022.

So, on Wednesday, Bessent told the world of Treasury's plans

to hoover up

even more U.S. debt than anyone expected.

Because just two weeks ago, Treasury published its quarterly bond

schedule

that called for buying back about $2 billion worth of Uncle Sam's debt.

Now, literally overnight, that number doubled to $4 billion.

Within minutes of the announcement, yields started to fall on long-dated

bonds.

CNBC ran with it. Bloomberg ran with it.

Treasury happily spun the news by saying it saw, quote, a

significant volume of high-quality offers from bond dealers

willing to sell debt back to the Treasury.

I mean, yeah, of course. The dealers don't want

that long-term trash and

are thrilled to dump it back on Uncle Sam.

But here's what the cheerleading press is not telling you.

This is not the Treasury Department paying down America's debt, and

it's not a routine bond buyback. First off, Treasury

doesn't have the money to pay down anything because it's running around like

an ADD

kid off his Adderall trying to figure out how to fund the over $2 trillion

deficit that Congress and the President have cooked up this

year.

What Treasury's actually doing is buying long bonds with one

hand while issuing short-term Treasury bills with the other.

That's Peter robbing Paul and Paul robbing Peter all at the same

time.

It's just money going in a circle, and it's not shrinking the debt as, quote,

buying back debt would seem to imply.

Every dollar of long bonds that Bessent buys is a dollar the

Treasury will now have to roll over every few months instead of every few

decades. And that, kids, is a huge interest rate risk at a time

when

inflation remains gnarly and when global bond investors are

clearly demanding greater yields because they rightly perceive that

America is in a no-win situation fiscally.

In terms that mean something to you, Bessent is effectively

moving America's interest rate problems off the government's balance sheet

and into your wallet. Treasury is dumping so many short-term

bills into the market now that it has to pay almost 4% to get anyone

to

buy them. Money market funds hold that debt, so they automatically

match that rate, which means banks have to match it by

actively raising their deposit rates.

Otherwise, they lose the deposits they need to

function.

But because banks need a profit margin, that just means you're paying

higher rates on your credit card, your home equity line of credit,

or your new car

loan. And possibly worse, three members on the Federal Reserve

wanted to hike short-term rates just last month.

If they ultimately win that fight because inflation remains

elevated

or rises even more, every one of the short-term T-bills

Bessent is selling at Treasury will reprice even higher.

And boom goes the dynamite inside Bessent's best-laid plans.

So let's go to the scorecard. On August 1st, Bessent orchestrated

America's first intervention in the Japanese yen in 15

years under the guise of helping a friend when, in reality,

he was keeping the biggest foreign holder of American debt from

selling that U.S. debt to prop up a crumbling yen.

And this week, in a surprise announcement, Bessent increased how much money

Treasury will spend to buy back America's own debt because the rest of the

world wants too much interest to hold that debt.

Both of those events share a common denominator. Fear that the U.S.

is in dookie so deep now that all Bessent can do is have Peter and

Paul rob each other over and over and hope a miracle lands in his

lap to get off this unstoppable hamster wheel.

That miracle is coming. And when it arrives, even Peter and

Paul will run out of pockets to pick, which leaves one pocket still in the

game, and that's yours.