The battle over managing long-end Treasury yields is turning into a tug-of-war between fiscal reality and policy tools.

Treasury Secretary Bessent recently announced a doubling of the buyback program for securities with maturities beyond 10 years, aiming to signal market intervention and curb further upside in long-end yields. Following the announcement, the 30-year Treasury yield fell about 10 basis points that day, with the curve showing a bull-flattening trend.

However, Goldman Sachs' macro team holds a clearly cautious view, arguing that this intervention merely provides temporary relief and cannot alter the directional trend of long-end yields.

Goldman Sachs macro strategist Vitali Meschoulam said bluntly: "Twist operations can influence the term premium, but they cannot eliminate it. Such operations can change the path, but rarely change the destination."

The current driver of rising long-end yields has shifted from technical factors to fiscal fundamentals, and once the market begins pricing in sovereign financing dynamics, the effectiveness of yield-suppression measures becomes increasingly limited. This operation may deliver a temporary compression of 20 to 40 basis points and a阶段性 flattening of the curve, but it cannot reverse the broader trend.

As of Thursday's writing, the 10-year Treasury yield was up 3 basis points to 4.684%, essentially back to where it stood before Bessent announced the expanded buyback program on Wednesday.

Bessent Sends a Signal, Market Cools Temporarily

In absolute terms, the scale of this buyback expansion is minimal—technically, it could have easily been included in the last Treasury Borrowing Advisory Committee (TBAC) refunding announcement, and it does not constitute a substantive shift in policy mechanism.

Bessent's real intention is to send a psychological signal to the market: policymakers are willing to intervene in increasingly crowded steepener positions, introducing two-way risk into what was viewed as a one-way bet on long-end rates.

The market's immediate reaction confirmed this assessment—the 30-year yield fell about 10 basis points that day, but the magnitude of the price move reflected more of the market's positioning structure than a change in fundamentals.

Pressure can be channeled but is difficult to eliminate. With short-end rates anchored by Fed policy and relatively fixed, pressure shifts to the dollar once the long end is intervened—currency depreciation becoming the most obvious market chain reaction following the announcement.

The Treasury's intervention comes in part because the Fed's recent communications have failed to effectively prevent an unfavorable tightening of long-end financial conditions. The friction between the Treasury's long-end rate management intentions and the Fed's balance sheet runoff process will be an important variable to monitor until the Jackson Hole symposium.

Historical Precedents: Policy Works Only When Aligned with the Trend

The common precondition for successful policy intervention is that the market already shares a consensus on the direction of lower yields.

The original "Operation Twist" of 1961 and the Fed's 2011 Maturity Extension Program both achieved modest declines in long-end yields, with effects generally estimated at 10 to 20 basis points. But at those times, inflation was mild and economic growth was weak—the market was already inclined toward lower rate levels, and policy intervention was pushing an open door.

Japan's Yield Curve Control (YCC) stands as the most successful case of long-end suppression, but its conditions were exceptionally demanding: prolonged absence of inflation, ample domestic savings, and broad investor acceptance of the policy-set equilibrium yield. Once inflation returned, the cost of maintaining the cap escalated sharply and ultimately became unsustainable.

Australia's lesson is more straightforward: the yield target operated smoothly until the market judged that inflation and growth dynamics had fundamentally changed, leaving the central bank with the dilemma of "unlimited bond purchases or abandoning the target"—it chose the latter.

Emerging market experience reinforces the same pattern. Turkey used regulatory measures and forced domestic demand to temporarily suppress yields, but investors ultimately focused on inflation, exchange rate stability, and policy credibility, and risk premiums inevitably re-emerged.

Brazil has repeatedly stabilized the long end temporarily through liquidity measures, but the curve has always ultimately returned to pricing fiscal credibility, inflation expectations, and real interest rates.

From this, one can infer that investors typically tolerate one of three conditions—weak growth, high inflation, or fiscal deterioration—but find it difficult to forgive all three simultaneously.

The Current Dilemma: Triple Pressure Stacked, Technical Tools Cannot Reach the Root

The current rise in long-end yields is not driven by technical supply-demand imbalances but by three structural forces acting together: increased duration supply from widening fiscal deficits, persistent inflation uncertainty, and market concerns that the equilibrium real rate has structurally shifted higher compared to the post-GFC era.

Unlike 2011, the current rise in long-end yields far exceeds what can be explained by adjustments to market expectations of Fed policy path—an increasingly larger share of the adjustment is being realized through rising term premiums, which are inherently more difficult to suppress with policy tools.

Additionally, there is a factor often overlooked by the market: the massive capital demand from AI infrastructure buildout—hyperscale data center capex, power infrastructure investment, and broader reindustrialization trends—is making capital itself scarcer, thereby pushing up its price.

Treasury buybacks and issuance structure adjustments are insensitive to all three forces—they can influence the amount of duration the market must absorb, but they cannot materially change inflation expectations, fiscal trajectory, or the equilibrium real rate. This is the core distinction between "technical relief" and "structural solution."

Goldman Sachs' conclusion is therefore clear: until growth deteriorates significantly, inflation declines decisively, and fiscal conditions improve meaningfully, investors will continue to demand compensation for holding duration assets. Bessent's operation is perhaps most accurately understood as managing the market's perception of duration risk, rather than eliminating the root cause of the risk itself.