US Treasury Secretary Scott Bessent tapping the $1 trillion Treasury General Account, as just announced, to fund bond buybacks is a major red flag for investors, warns the CEO of one of the world’s largest independent financial advisory organisations.
Nigel Green of deVere Group’s comments come as the US national debt punches through $40 trillion, arriving roughly two years ahead of official government forecasts, and the Treasury doubles the size of its bond buyback programme in an attempt to steady a market where 30 year yields had climbed to levels not seen since 2007.
He says: “When a government has to step into the market and start buying back its own debt, it tells you the usual buyers didn’t show up in the volume Washington needed, and officials had to find another lever to pull.
“What we’re looking at is a band aid fix, not a solution. It smooths the surface without touching the pressure building underneath it.
“Buybacks can quiet a single trading session, and that’s exactly what happened this week. Yields dropped sharply within minutes of the announcement landing.
“But a borrowing position that has just crossed $40 trillion cannot be talked down or bought down in an afternoon.
“Investors reached that conclusion almost as fast as the announcement itself moved through the wires, and the rally reversed within a day, erasing the initial drop in yields entirely.
“It’s a textbook pattern of a market testing an intervention and finding it wanting once the shock wears off. The first move was reflex. The second move, the following day, was the market doing its arithmetic.
“Layer on the reported plan to draw close to $1 trillion out of the Treasury General Account, cash built from ordinary tax receipts, to help fund further buybacks, and you have a government dipping into its own operating reserves to prop up demand for its own paper. That is not a borrower firmly in control of its financing.
“It’s a borrower running short of easy options.”
Takeaway for investors is not panic, it’s repositioning.
“Spreading exposure across regions, currencies and asset classes stops being a nice to have and becomes essential. Investors should be looking well beyond their biases, toward equities, alternative assets and currencies that are not tethered to a single sovereign balance sheet under this kind of strain.”
Gold and other assets that hold up well against inflation could deserve a fresh look too. When a government is signalling, however indirectly, that it needs to manage demand for its own bonds, that is precisely the environment in which real assets tend to outperform paper promises.
Nigel Green concludes: “The clearest message from this week appears to be that Washington is buying time, not fixing the problem.
“Investors who treat this as a passing headline rather than a structural warning will be the ones most exposed if or when the next, bigger test of confidence lands.”
