Stanley Druckenmiller recently published a Wall Street Journal op-ed, where he criticized Treasury Secretary Scott Bessent of manipulating one of the most important prices in the world. Besse
Stanley Druckenmiller recently published a Wall Street Journal op-ed, where he criticized Treasury Secretary Scott Bessent of manipulating one of the most important prices in the world.
Bessent announced in August that he would be doubling the size of bond buybacks from $2 billion to $4 billion per operation. When that didn’t drive yields down, he said that the amounts could be higher, and pointed towards the Treasury General Account as a possible funding mechanism. Yields went higher still, especially on longer term bonds.
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His justification was that liquidity was low, and that the yields weren’t accurately representing market conditions. Druckenmiller responded, “This wasn't liquidity management, it was price management."
David Lawant, head of research at Anchorage Digital, joined TheStreet Roundtable to share his thoughts.
"Stanley Druckenmiller's op-ed makes a lot of sense on the theoretical side of things. On the other hand, I think we have to acknowledge how a lot of these things work in real life," he said.
Asked who is right, Lawant widened the frame instead.
"The discussion here is fascinating," he said. "What makes it so is not the personalities but the signal: after two years in which tariffs, wars and supply shocks drove risk assets, the machinery of money is back at the center. "It has been looking like or feeling like the macro winds were kind of changing. We had that Japanese yen intervention maybe a month or a few weeks ago, and then this more, let's say, unique perhaps intervention in the long end of the curve.”
Both are larger than his passing reference suggests. Japan’s Ministry of Finance bought yen in coordination with the US Treasury on July 31, the first joint action since 1998, then spent a record ¥15.39 trillion through late August.
Set the buyback expansion beside that and a pattern emerges. Two governments, three weeks apart, stepping into markets to defend a price.
Druckenmiller’s view, Lawant says, “makes a lot of sense on the theoretical side of things. On the other hand, I think we have to acknowledge how a lot of these things work in real life."
In Druckenmiller’s theory, the long bond disciplines the government because no committee can outvote it.
"The long-term Treasury yield is the most important price in the world. It is also the only fiscal disciplinarian the U.S. has left," Druckenmiller wrote, adding that governments that defend prices against fundamentals “always lose.”
Real life is messier. Buybacks are a routine tool, and Bessent has defended them as such, saying that the Treasury has “a big toolkit.”
"The official Treasury justification here is that this is more like liquidity management,” Lawant said. “But of course, the timing is kind of a little bit odd, right? The fact that it's happening at a time when the 30-year yield is approaching multi-decade long highs leaves a little bit of room for discussion."
The 30-year Treasury yield hit 5.286% on September 1st, its highest in nearly 2 decades.
Federal Reserve chair Kevin Warsh took the stage in Jackson Hole Friday, where he said that the summer’s better than expected inflation readings “do not tell me that underlying trends have meaningfully improved.”
In response, odds of a September hike jumped from 35% to nearly 60% within an hour of Warsh’s comments.
These three parts: a coordinated currency intervention, a Treasury stepping into the long end, and a Fed chair signaling he may hike into it, signal that the government improvising against a bond market it has lost control of.
Lawant doesn’t see it that way though.
"I think there's a plan. I can see a way for all these pieces to start fitting together. Of course there's risk, but I can see a strategy here and we'll see how it will play out."
He did not say exactly what he thinks that strategy is, but what he has committed to is that the interventions of August are coordinated rather than reactive, and that people at the Treasury and the Fed are looking at the same board.
Whether they are playing it well is an open question, and one we will get an answer to in the next few months.
