After Treasury Secretary Bessent unexpectedly announced an expansion of the long-dated Treasury buyback program last week, Wall Street has been locked in fierce debate over whether this policy can genuinely lower America's long-term financing costs. Even though long-dated Treasury yields remain near multi-year highs, the latest market indicators suggest the Treasury's intervention is already having an impact, and traders are increasingly reluctant to fight against this policy force that the market has dubbed the "Bessent Put." Since the expanded buyback announcement, Treasuries have notably outperformed interest rate swaps of the same maturity, with the spread between 30-year Treasury yields and swap rates narrowing to its lowest level since February. Meanwhile, benchmark Treasury yields, after brief turbulence following the policy announcement, are now beginning to drift lower.

The "Bessent Put" begins to take shape, and the market dares not easily short long bonds

Bessent announced last week that the Treasury Department would "at least double" the scale of its long-dated Treasury buyback program to relieve pressure in the long-end market. Jason Williams, head of U.S. rates strategy at Citigroup, said the new Treasury policy effectively provides a degree of "safety cushion" for long-dated Treasuries, thereby improving the risk-reward profile of holding long bonds. He characterized this policy support as a new "Treasury put option," meaning that when long-dated Treasuries suffer severe selling and yields spike rapidly, investors begin to anticipate that the Treasury may step in by increasing buyback volumes. Williams noted that both the expanded Treasury buyback and recent intervention measures regarding the yen show that Bessent is willing to deploy a variety of policy tools to achieve his goals. Media reports on Monday indicated that the Treasury Department may even tap funds in its Treasury General Account (TGA) held at the Federal Reserve to finance further increases in long-dated Treasury buybacks. This news provided additional support to the Treasury market, while falling crude oil prices also helped alleviate inflation and yield pressures. Although long-term financing costs remain near multi-year highs, and many of the structural factors driving global long-term rates higher have not disappeared, recent market performance suggests that without Treasury intervention, yields would likely be at even higher levels right now.

Options market shifts notably bullish on long-dated Treasuries

The impact of the Treasury's policy is equally evident in the options market. Over the past week, bond futures options linked to long-dated Treasuries have shifted notably bullish, with demand for call options rising rapidly relative to puts. In contrast, the skew in short-dated Treasury futures options remains near the neutral levels of the past few months, indicating that the market's focus on policy intervention is concentrated at the long end of the yield curve. Alex Manzara, derivatives broker at R.J. O'Brien & Associates, said the real "trading opportunity" right now lies at the long end. He noted that if there is any "fear" in the market at present, it is the concern that further government intervention could trigger a sudden sharp decline in long-term yields. In other words, while investors previously worried primarily about continued Treasury selling and further yield spikes, now that the Treasury has explicitly entered the market to buy back long bonds, some traders are beginning to worry that continuing to short long bonds could invite sudden policy escalation. Even though some market participants, including billionaire investor Stanley Druckenmiller, believe Bessent's intervention is a mistake, traders must still confront the reality that there is now a well-capitalized buyer in the market that may continue expanding its purchase scale.

30-year Treasury-swap spread falls to lowest since February

Another key indicator reflecting the effectiveness of the Treasury's policy is the spread between Treasury yields and interest rate swaps. In recent years, as the U.S. government has issued debt on a massive scale and Treasury supply has surged, Treasury yields have persistently risen relative to swap rates. This shift has also spawned a wave of hedge fund participation in related spread trades. Federal Reserve researchers estimate that hedge fund positions in this area have grown from less than $50 billion in 2022 to a record $305 billion last year. Although Treasury yields still remain significantly above swap rates, the gap has begun to narrow following Bessent's buyback announcement. The 30-year Treasury-swap spread has fallen to its lowest level since February, while the 10-year spread has narrowed by about 3 basis points to roughly 38 basis points. Padhraic Garvey, head of regional research at ING in New York, believes the narrowing spread reflects investors considering the possibility that if the Treasury deems the buyback policy effective, it may expand the program "again and again" in the future.

JPMorgan survey shows investors reducing neutral positions

Investor positioning is also beginning to shift. JPMorgan's U.S. Treasury client survey conducted on August 24 showed that investors increased both long and short positions, while the proportion of investors maintaining neutral positioning fell sharply from 67% previously to 54%, the lowest level since May 26. This indicates that with the Treasury intervening in the long bond market and uncertainty remaining over future Fed policy, investors are increasingly choosing to take directional bets. The SOFR options market has also seen a wave of new positions, with open interest at certain key strike prices increasing notably, reflecting traders repositioning for future U.S. rate movements.

Treasury yields remain at multi-year highs, and fiscal deficit issues have not disappeared

However, the near-term improvements from the Treasury buyback have not changed the reality that U.S. long-term financing costs remain near historic highs. The 10-year Treasury yield, which the Trump administration has focused on, remains above 4.6%, close to its highest level since early 2025, while the 30-year yield is near 5.2%, not far from its highest level since 2007. Libby Cantrill, head of public policy at Pacific Investment Management Company, pointed out that implementing buybacks at the long end of the yield curve may technically help push yields lower, but the fundamental drivers of rising Treasury yields have not changed. One of the most important issues is that the U.S. structural fiscal deficit remains persistently elevated. To finance the massive government debt and fiscal spending, the Treasury still needs to continuously supply large amounts of debt to the market. Therefore, expanding buybacks can alter short-term supply-demand dynamics, but it cannot eliminate the fiscal fundamentals causing long-term yields to rise.

Overall, Bessent's Treasury buyback program is generating more significant market impact than some on Wall Street initially expected. The narrowing Treasury-swap spreads, the bullish turn in long-end options, and traders' wariness of further policy intervention all indicate that the so-called "Bessent Put" is gradually taking shape. But questions remain over how long this policy support can last. With U.S. fiscal deficits and Treasury supply pressures showing no signs of significant relief, the Treasury appears to be setting up a policy "safety cushion" for the long-dated market rather than fundamentally reversing the trend of elevated long-term yields.