Why the US Treasury Is Battling the Bond Market and What Investors Can Do About It

It’s too early to tell the outcome of Treasury Secretary Scott Bessent’s current battle with the bond market, but a complex mix of forces is at play, and investors can still come out ahead by sticking with best-in-class bond managers.

Bessent’s Gambit

The Treasury secretary’s recent star turn in the media started on Aug. 19. That’s when the agency announced that it would be “… increasing, by at least double, the size of liquidity support buyback operations for longer-dated nominal coupon securities” on Sept. 9. The stated goal was a “desire to provide greater liquidity support” to longer-maturity government bonds, and the plan was to buy a lot of Treasury bonds on the open market.

The market did not wait three weeks to respond. Yields initially fell, meaning bond prices went up and bondholders made money, but then they reversed course. By Sept. 1, a Bloomberg headline declared, “Bessent’s Bond Gains Wiped Out as Treasury Yields Jump Again.”

The 10-year US Treasury note has mostly been rising since then, and the market has remained abuzz. Legendary investor Stanley Druckenmiller wrote an opinion piece in The Wall Street Journal arguing that Bessent was “artificially suppressing” bond yields. And nearly every conversation since has talked about it as a measure to force down interest rates. A few defenders have argued that Bessent meant what he said, but most who share Druckenmiller’s sentiment believe the liquidity narrative is a smoke screen and that Bessent is trying to keep a lid on longer-maturity bond market yields because that’s what President Donald Trump wants. Druckenmiller later opined, “The market’s verdict was swift and correct … his wasn’t liquidity management, it was price management,” according to Fortune magazine.

The secretary has remained defiant. He reportedly declared, “I am the house now, and you can bet against me if you want,” according to CNBC. The Treasury upped the ante on Sept. 9, announcing it would buy back even more bonds than expected, enlarging the plan to $6 billion worth of bonds rather than $4 billion. The market’s reaction was not what Bessent had hoped. CNN reported that 10-year Treasury note yields rose 5 basis points to 4.85% shortly after the news came out; they subsequently rose another 10 basis points and are now near 5%.

Ineffective though it may have been, Bessent’s buyback plan speaks directly to the Treasury Department’s independence. Trump has been outspoken about wanting interest rates lower. And as Treasury secretary, Bessent serves at the pleasure of the president.

So even though the Treasury says it’s about market liquidity, conventional wisdom is that it’s meant to keep Trump happy by trying to push interest rates down.

Bessent and his Treasury’s fiscal policy credibility are on trial. Even hard-line opponents of market intervention can tolerate Congress, the White House, and the Treasury getting involved during a crisis. It’s like spending money right from your wallet, though, and markets don’t want to see that, barring an emergency. Otherwise, the goldilocks scenario is a mix of fiscal policies that rein in deficits and avoid fueling inflation.

The last thing markets want is a policy of spending to buy back bonds while inflation remains untamed. That’s no secret, especially when concern has mostly been around whether new Federal Reserve Chair Kevin Warsh would use his own monetary policy tools to please Trump, by lowering short-term interest rates, for example. So far, it appears that Warsh is holding the line, and the narrative looks like a game of chicken between Bessent’s stimulus and Warsh’s restraint.

A Game of Chess

The irony is that Bessent’s solid reputation on Wall Street has always been closely associated with his history of working with Druckenmiller, his one-time mentor, along with George Soros and Warsh himself. Fortune described it as a Shakespearean saga.

There is another line of thinking: that Bessent’s plan is really to fund the long-term bond purchases with more short-term debt. That could add to borrowing costs if Warsh and the Fed raise short-term interest rates at the Sept. 16 meeting, which the market now overwhelmingly expects the Fed to do following the latest inflation reading. Allianz advisor and former Pimco CEO and CIO Mohamed El-Erian has said that funding long-term bond purchases with short-term debt would still cause some collateral damage. He noted, however, that the planned purchases are “small in both absolute terms and relative to net issuance.”

That raises the question of whether Bessent has been making his declarations with a big splash to appease the president, but he really doesn’t intend to strong-arm the Treasury market, much less get in the way of the Fed’s inflation-fighting efforts. If that’s true, Bessent seems to be playing a complex game of 3D chess.

Leaving It to the Professionals

Navigating the bond market and coming out ahead as this chess match takes place is best left to the topnotch investment professionals Morningstar has identified through decades of covering bond funds. For example, an array of managers with core-plus mandates, which dominate fixed-income investor assets in the actively managed mutual fund and exchange-traded fund space, has been on the right side of the market in the period since Bessent’s original announcement, including those managing funds in the exhibit above. Of the roughly 105 unique funds in the intermediate-term core-plus Morningstar Category that are recommended by Morningstar analysts with Morningstar Medalist Ratings of Bronze, Silver, or Gold, roughly 65% outperformed the Morningstar Core Bond Index between Aug. 19 and Sept. 9, 2026. That’s an extraordinarily tiny snapshot, but an interesting one given questions about Bessent’s true meaning or motives and the market’s response.