US Treasury bonds are climbing across the board. As of the time of writing, the 2-year Treasury yield is up 0.12%, the 5-year Treasury yield has risen 0.48%, the 10-year Treasury yield has gained 0.48%, and the 30-year Treasury yield has advanced 0.35%. Notably, the 30-year Treasury yield has remained above the 5% threshold for over 40 consecutive days.

Meanwhile, trend-following hedge funds (CTAs) and leveraged investors have established the largest net short position in history on Treasury futures. Massive amounts of capital are betting on further declines in bond prices and continued upward pressure on yields.

In response, the US Treasury Department has decided to take action, at least doubling the scale of its long-term bond repurchase program starting next month. However, experts describe this move as "using a band-aid to treat a gunshot wound." The market initially responded with gains, with long-term Treasury prices rising and the 30-year yield retreating from the 19-year high it hit just days earlier. But the effect quickly faded, and yields have since resumed their upward trajectory.

Where the strategy falls short

JPMorgan believes that repurchasing US Treasuries may offer temporary relief, but it could merely delay the eruption of the debt problem. What exactly is the Treasury Department doing? It is buying back longer-dated bonds while simultaneously issuing short-term bills. A JPMorgan expert notes: "This is akin to paying off a mortgage with a credit card—it might work in the short run, but the mismatch will inevitably become more pronounced."

The scale of US government debt continues to shock the economic world. It has now climbed to $40 trillion, pushing the 30-year Treasury yield to its highest level in 19 years. The 10-year Treasury yield is approaching the 5% annualized threshold, roughly three times what it was five years ago. Meanwhile, the Federal Reserve has not raised interest rates in three years. There is widespread skepticism in the market about whether the Treasury Department has enough "firepower" to manage a vast fixed-income market.

Stanley Druckenmiller, head of the Duquesne Family Office and investment mentor to Treasury Secretary Bessent, warns that without fiscal discipline, the Treasury's efforts to suppress yields will not only harm the market but also damage its own credibility. Writing in his Wall Street Journal column, he states: "If the 30-year Treasury must clear at a 5.5% yield, that is not a crisis—it is a bill. The only way to durably lower long-term yields is to address the primary deficit."

Why just 10 ASX 200 shares?

BCA Chief Strategist Ryan Swift says in a client report: "If the US government truly wants to push bond yields lower, the Federal Reserve must be involved. Unless the Fed deploys its balance sheet, any government effort to lower yields will fail. In fact, if investors begin to sense the government is rushing, these efforts could even backfire."

However, Swift believes Fed Chair Kevin Warsh is unlikely to intervene. During his brief tenure at the helm of the Fed, Warsh has consistently emphasized that the market should perform its price-discovery function.

Pacific Investment Management Company's Public Policy Director Cantrill reminds investors that even if technical measures can temporarily suppress yields, the fundamental contradiction of massive US budget deficits remains unresolved. Against the backdrop of the $40 trillion debt ceiling, the supply pressure underpinning Treasury financing remains enormous.

According to JPMorgan's client survey as of August 24, market positioning is showing a clear polarization: neutral positions have dropped to 54%, the lowest level since May this year. This suggests that under the influence of the "Bessent option," previously sidelined capital is being forced into the market, seeking a new equilibrium between policy intervention and macroeconomic pressures.