Treasury Secretary Scott Bessent's unexpected strategy to reduce US borrowing expenses through expanded bond repurchases may have ignited intense discussion about its true efficacy, yet crucial market indicators and investor positioning demonstrate it is making its mark.

Following Bessent's announcement last week, Treasuries have outperformed swaps of comparable maturity, compressing the 30-year spread between them to its tightest level since February. Benchmark US yields have also trended downward after an initial period of fluctuation in response to the government's pledge to "at least double" its buybacks of longer-dated securities.

"This new Treasury 'put' enhances the attractiveness of holding the long end by offering a potential backstop," remarked Jason Williams, head of US rates strategy at Citi. Bessent's recent moves, encompassing the increased buybacks and yen intervention, "all indicate someone prepared to do whatever is necessary to accomplish their objectives."

On Monday, CNBC reported the department could tap the Treasury General Account — the department's cash reserves held at the Federal Reserve — to fund these expanded purchases of long-dated bonds. This provided additional momentum to the market, which also received a boost from declining crude oil prices.

Although long-term borrowing costs continue to hover near multi-year highs, with many of the structural factors driving global yields upward remaining unchanged, the market movements imply they would be elevated further without Bessent's intervention.

And even if the prolonged impact of the intensified buyback program remains uncertain — with billionaire investor Stanley Druckenmiller among those labeling Bessent's intervention a misstep — numerous traders now recognize there is a substantial buyer in the market and are hesitant to oppose a "Bessent put."

A parallel pattern is unfolding in the options arena. A bullish lean has emerged over the past week, evidenced by a sharp increase in calls relative to puts on US bond futures tracking long-maturity Treasuries. Conversely, the so-called skews for futures on shorter-maturity Treasuries have remained nearer the neutral levels observed over the past several months.

"The current focus is on the long end, and the prevailing concern, if one could call it that, is that long rates might plummet due to intervention," said Alex Manzara, a derivatives broker at R.J. O'Brien & Associates.

Swaps are derivative agreements through which two parties consent to exchange interest payments, typically a floating rate for a fixed one. They are frequently utilized by corporations and investors to hedge interest-rate risk, such as matching payments against future obligations. In the US, they are generally linked to the Secured Overnight Financing Rate, with the 30-year swap reflecting market expectations of average rates over the coming three decades. This positions it as a financial product analogous to a 30-year US Treasury.

In recent years, as the global supply of government bonds expanded dramatically, US yields have widened relative to swap rates. This divergence has attracted heightened hedge fund interest in speculating on swap spread directions. Federal Reserve researchers estimated their positions surged to a record $305 billion last year, up from under $50 billion in 2022.

While Treasury yields remain substantially elevated compared to swap rates, Bessent's announcement has offered some reprieve. The 10-year swap spread has also contracted, with the gap narrowing by three basis points to approximately 38 basis points.

The tightening swap spreads reflect the possibility "that the buybacks could be augmented repeatedly in the future should the US Treasury deem it an appropriate policy," noted Padhraic Garvey, regional head of research for ING Groep NV in New York.

Nevertheless, the recent decline has only marginally dented a multi-year ascent in long-term US government borrowing costs. The 10-year US yield — which Bessent has indicated President Donald Trump's administration is focusing on — remains largely unchanged at 4.63% in Asian trading on Wednesday, after reaching its highest point since early 2025 last week. The 30-year Treasury yield holds steady at 5.17%, easing from its loftiest level since 2007.

"While conducting buybacks at the long-end of the yield curve may technically lower yields, a fundamental driver of higher Treasury yields — notably elevated structural US budget deficits, which necessitate substantial Treasury supply to finance US debt — is not changing in the foreseeable future," said Libby Cantrill, head of public policy at Pimco.

Here is a summary of the latest positioning indicators across the rates market:

JPMorgan Treasury Client Survey

Investors polled by JPMorgan Chase & Co. on Aug. 24 reported increased long and short positions, with neutral positions declining to 54%, the lowest since May 26, down from 67%.

SOFR Options Positioning

Across SOFR Sep26, Dec26 and Mar27 options, open interest surged at the 96.0625 strike, concentrated in Sep26 and Dec26 puts. Notable flows included purchases of SFRU6 96.1875/96.0625 put spreads and SFRZ6 96.125/96.0625/95.625 put trees.

The 96.25 strike remained the most heavily populated across Sep26, Dec26 and Mar27 option tenors, with substantial open interest in Sep26 and Dec26 calls. In the four most populated strikes, open interest in Sep26 and Dec26 calls exceeded puts by more than twofold.