Bessent's former mentor warns US Treasury 'will lose' fight with bond markets
Investor Stanley Druckenmiller has criticised US Treasury Secretary Scott Bessent's attempts to artificially suppress bond yields, warning the strategy is doomed to fail. He urges Washington to tackle the budget deficit instead of intervening in markets.
Billionaire investor Stanley Druckenmiller, who worked alongside Scott Bessent at George Soros's fund in the 1990s, has publicly broken with his former protégé's approach to managing US borrowing costs. Writing in the Wall Street Journal, Druckenmiller warned that Bessent's efforts to suppress long-term Treasury yields are dangerous and ultimately unsustainable.
Druckenmiller argued that the bond market should be allowed to "speak" for itself, rather than have the Treasury expand its bond-buying operations to artificially prop up prices and push borrowing costs down. He said governments that try to defend prices against economic fundamentals always lose — the only question is how much money gets spent before they concede.
Yields as a fiscal disciplinarian
Druckenmiller described the long-term Treasury yield as "the most important price in the world" and the only remaining fiscal disciplinarian left for the US, since neither political party is willing to campaign on entitlement reform.
The criticism follows Bessent's decision to at least double the maximum size of the Treasury's bond buyback operations, from $2bn to $4bn. That move briefly pushed down long-term bond yields, but the effect quickly reversed. Druckenmiller said the market's response was swift and correct, arguing the move amounted to price management rather than liquidity management, and represented a mistake far larger than the $4bn figure suggests.
CNBC reported the previous day that Bessent could expand his bond-buying capacity further by using the Treasury's near-$1tn General Account, held at the Federal Reserve.
Rising national debt
The US national debt passed $40tn last week and continues to climb, with this year's annual deficit expected to reach $2tn. Druckenmiller said tackling the primary deficit is the only way to durably lower long-term yields, adding that a credible fiscal package would do more for long-term borrowing costs than a buyback programme 1,000 times its current size.
Axel Rudolph, chief technical analyst at trading platform IG, said Bessent's intervention signals that Washington is increasingly uncomfortable with soaring long-term borrowing costs.
