In a TechFlowPost article, author Fu Peng wrote that U.S. Treasury Secretary Bessent has stepped aggressively into both the currency and bond markets within a single month, with both interventions aimed at the same issue: risk building at the long end of the U.S. Treasury market.
From yen support to larger long-bond buybacks
The first move came at the start of the month through joint U.S.-Japan intervention in the foreign-exchange market. The article says Japan is the largest official overseas holder of U.S. Treasuries, and argues that if Washington had not helped Tokyo defend the yen, Japan might eventually have had to sell Treasuries on a large scale to sustain its own intervention. In that framing, the joint effort to support the yen effectively dismantled a potential overseas Treasury selling shock before it hit the long end.
The second move came on Wednesday, when the scale of long-dated Treasury buybacks was doubled. According to the article, the timing was aimed at August’s seasonally weaker liquidity window and was designed to hit one-way short pressure in long-dated bonds, forcing down both long-end yields and term premium.
Short-end rates and long-end rates are being driven by different forces
The article says short-dated Treasury yields are supported by high-productivity investment demand in the real economy and by nominal inflation compensation. As long as productivity and inflation remain firm, it argues, short-end rates will be hard to push lower.
Long-dated yields, by contrast, have been rising mainly because of a structural repricing in term premium, which the piece describes as compensation investors demand for uncertainty around the future of U.S. fiscal policy and institutions. Fu Peng writes that after several years of Federal Reserve quantitative tightening, foreign central banks have reduced long-Treasury buying because of reserve diversification and domestic-currency defense, while U.S. commercial banks have also pulled back under constraints including SLR rules.
At the same time, a large stock of low-coupon legacy debt is set to mature in 2026. Layered on top of that is nearly $2 trillion in annual net new deficits. The article says the Treasury Department’s heavy supply of long-dated bonds has overwhelmed the limited buying capacity available in the secondary market, forcing term premium higher in order to attract demand. It links that process to the sharp widening in the spread between U.S. 30-year and 10-year Treasury yields starting in 2025.
Both actions were meant to press down long-end yields
Fu Peng argues that the core purpose of both interventions was to address what the article calls a micro-liquidity warning tied to a "debt interest spiral" in long-dated Treasuries. If long-end yields remain too high, the article says, they would directly hit U.S. mortgage rates and corporate refinancing costs. Without administrative fiscal measures to cap 30-year yields, it adds, market-maker congestion and basis deleveraging could quickly turn a fiscal-deficit problem into a broader collateral liquidity crisis across markets.
In that context, the Treasury Department is described as stepping in as the buyer of last resort by concentrating buybacks in older 10-year to 30-year bonds. The article says that effectively injects steady, predictable demand into the long end, absorbs inventory sitting on dealer balance sheets, compresses both term premium and the liquidity discount, and pushes long-end yields lower.
By comparison, yields on Treasuries from three months to two years are still presented as the risk-free discounting of the future path of the Federal Reserve’s federal funds rate, or FFR. With inflation still sticky and the Fed either standing pat or maintaining restrictive high rates, the article says short-end yields remain supported.
A flatter curve and a weaker signal from the long end
The article says that when short-end yields are pinned by inflation and the central bank, while long-end yields are forced lower by Treasury intervention, long-dated yields move closer to elevated short-dated yields. That compresses the 10Y-2Y and 30Y-10Y spreads and produces a classic flattening of the yield curve.
Fu Peng adds that historical episodes of flattening or inversion have often reflected market-driven pricing of recession risk. This time, the article says, the flatter curve carries a strong administrative fiscal imprint. In that reading, the short end reflects the contest between inflation and the central bank, while the long end reflects the Treasury Department’s defensive debt-management strategy. As a result, long-end rates lose part of their role as a forward-looking economic barometer.
Implications for tech valuations and foreign demand
The article also links lower benchmark long-end yields to equity valuation support. It says that if 10-year and 30-year risk-free rates are pushed down by policy action, with the 10-year brought back to around 4.6% and the 30-year moving lower, the discount-rate pressure on long-duration cash flows is eased. That, in the article’s view, helps support valuations for large-cap technology names and AI leaders with strong cash generation, while shifting more volatility back to company fundamentals.
Fu Peng concludes that joint U.S.-Japan intervention, together with hot-money inflows, has flattened long-dated Treasury yields enough to reduce the appeal of cross-border carry trades such as going long long-dated Treasuries while shorting the yen or the euro. The article says that dynamic could also reduce the marginal willingness of foreign official institutions and other overseas investors to add to long-dated U.S. Treasury holdings.