On August 19th, the U.S. Treasury took an unusual step to calm the market for long-term government debt. The sums involved were modest; the signal was not. In plain terms, Washington is now actively working to hold down the interest rate it pays on its longest-dated borrowing, and the cost of that effort is showing up in a weaker dollar. Below is our read on what happened and what it means for portfolios.
What Happened
A Treasury “buyback” is simply the government repurchasing its own outstanding bonds from investors, much as a company buys back its own shares. Treasury announced it would at least double the size of these operations in the 10- to 30-year part of the market, from a maximum of $2 billion per operation to at least $4 billion, running from September 9th to November 4th. The phrase “at least” was deliberate as it indicates a soft ceiling, and Secretary Bessent confirmed the next day the figure could go higher. The backdrop matters because the 30-year yield had reached roughly 5.3%, its highest in nearly two decades, from about 4.8% in late June.
What the Treasury Was Trying to Achieve
Lower long-term borrowing costs. The 30-year yield anchors mortgage rates, corporate borrowing costs, and the government’s own interest bill. Rising long yields tighten conditions across the economy.
Disrupt a crowded trade. Most investors were positioned for long yields to keep rising. A surprise on a thin August trading day forced that consensus to reconsider.
Demonstrate intent. Treasury wanted to show it is willing to act on the “term premium,” the extra compensation investors demand for lending for thirty years rather than three months.
Long yields had risen for structural reasons: a large and growing federal deficit, enormous global demand for capital to build AI infrastructure, and continued uncertainty about inflation. None of these is a buyer shortage that a buyback can fix.
Has This Been Tried Before?
The closest parallel is Operation Twist in 1961, when Treasury and the Fed together bought long-dated bonds and sold short-dated ones to pull long rates down while keeping short rates high to defend the dollar. A more cautionary precedent is 1942–51, when the Fed capped Treasury yields outright to hold down wartime borrowing costs: a policy abandoned only when post-war inflation made it untenable. Today’s version is smaller in kind: true yield curve control means defending a specific yield with unlimited purchases, whereas Treasury has committed a defined budget. The intent is similar; the firepower is not.
Did It Succeed?
Partly, and briefly. On the day, 30-year yields fell about 0.09%, and the announcement caught bearish positioning off guard. Within days, the move had fully reversed. That round trip is informative because if long yields were high because of a temporary imbalance between supply and demand, buybacks would help. Our view is that they are high for macroeconomic reasons, and reducing the supply of long bonds addresses none of them.
More telling is where the pressure went instead. The dollar weakened. When a country runs large deficits alongside persistent inflation, investors demand compensation, delivered either through higher bond yields or a cheaper currency. With short rates set by the Fed and the long end defended by Treasury, the bond market could not deliver it. The currency did instead.
How It Is Being Financed and the Tension It Creates
Treasury funds these purchases by issuing more short-term Treasury bills, converting long-term fixed obligations into short-term ones. The short end absorbs that supply comfortably, but the government ends up refinancing more of its debt more often. It also creates a real tension between two arms of policy: Fed Chair Warsh has signaled comfort in letting higher market yields do some of the Fed’s tightening work, while Treasury is compressing those same yields. It’s a recipe for more volatility, not less.
What It Means From Here
We expect further intervention if long yields rise again. November 4, quarterly refunding is the next checkpoint. The broader implication is that the dollar has become the release valve for the U.S. fiscal position. Globally, a softer dollar eases financial conditions and tends to support emerging markets and commodity exporters, while raising import costs into the United States. The variable to watch is credibility. If investors conclude debt costs will be managed through currency weakness rather than fiscal restraint, demand for real assets stays strong and long yields stay elevated.
Implications by Asset Class
Asset Class
Our Read
Long-Dated Government Bonds
Likely to stay elevated and volatile. Buybacks may cushion sell-offs but do not remove the underlying pressure.
Short-Dated Bonds and Cash
Well supported. Heavy bill issuance is absorbed easily and yields remain attractive with minimal interest-rate risk.
U.S. Dollar
The principal adjustment mechanism. The bias remains to the downside while deficits are financed this way.
Gold and Real Assets
Structurally supported. A weaker dollar makes gold cheaper abroad, and lower real yields reduce the cost of holding an asset that pays no income.
Equities
Lower long yields help valuations, but dollar weakness argues for genuine diversification, including internationally.
Credit
Stable near term. Worth watching the heavy corporate issuance now competing with Treasuries for demand.
Our Positioning
We entered this episode slightly underweight duration by holding bonds of somewhat shorter maturity than our benchmark, and we are maintaining that stance. With the yield curve only mildly sloped, investors are not being paid much extra to take the risk of longer-dated bonds. We do expect inflation to soften as rent increases moderate and tariff effects fade. But falling inflation alone will not reliably bring long yields down while the deficit trajectory and global demand for capital remain what they are.
In Closing
The Bessent Twist is best understood not as a solution but as a signal. Managing the cost of the federal debt has become an active policy objective, and the adjustment is being carried out through the currency and real assets rather than the bond market. We are following this closely and will update you as the picture develops, particularly around the November refunding.
If you would like to discuss what this means for your own portfolio, your fixed income positioning, or your exposure to the dollar and to real assets, please reach out to your advisor. We would welcome the conversation.
Lido Advisors, LLC is an SEC-registered investment adviser. Please note that SEC registration does not denote any particular competence or ability and no inference to the contrary should be made. For complete information on the services we provide and our fees, please review our Form ADV at adviserinfo.sec.gov, call 800-301-LIDO, or mail us at 1875 Century Park East Suite 950, Los Angeles, CA 90067.
The information contained herein reflects Lido’s views as of the date of this newsletter. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. Lido has obtained the information provided herein from various third-party sources believed to be reliable but such information is not guaranteed. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Lido is not responsible for the consequences of any decisions or actions taken as a result of information provided in this newsletter and does not warrant or guarantee the accuracy or completeness of this information.
Past performance is not indicative of future performance. The information in this report is for informational purposes only and should not be relied upon as the basis of an investment or liquidation decision. Nothing in this report shall be construed to be a solicitation to buy or offer to sell any security, product or service to any non-U.S. investor, nor shall any such security, product or service be solicited, offered or sold in any jurisdiction where such activity would be contrary to the securities laws or other local laws and regulations or would subject Lido to any registration requirement within such jurisdiction. All content herein has been obtained from sources deemed to be reliable, but is subject to unintentional errors, omissions and changes without notice, and is not warranted as to its accuracy or completeness. You should not rely on the information contained herein, and should rely solely on, and carefully read, the appropriate offering and related subscription materials relating to any specific investment product before making any investment decision.
Not all investments are suitable for all clients. It should not be assumed that any security listed or any recommendations made in the future will be profitable or without loss, including risk of loss of principal, or will equal any prior performance. All investments involve the risk of potential investment losses including the potential risk of loss of principal as well as the potential for investment gain. Further, the prior performance figures indicated herein represent portfolio performance for only a short time period and may not be indicative of the returns or volatility each portfolio will generate over a long time period. The performance of the portfolios should also be viewed in the context of the broad market and general economic conditions prevailing during the periods covered by the performance information. Any references to future returns/risk are not promises of the actual return the client portfolio may achieve. Before investing, investors should seek financial advice regarding the appropriateness of investing in any securities of investment strategies discussed. Not all investments are suitable for all investors.
The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.
Lido specifically disclaims any and all liability arising from the information or illustrations presented in these materials and is not responsible for the consequences of any decisions or actions taken as a result.
IMPORTANT DISCLOSURES
Lido Advisors, LLC is an SEC-registered investment adviser. Please note that SEC registration does not denote any particular competence or ability and no inference to the contrary should be made. For complete information on the services we provide and our fees, please review our Form ADV at adviserinfo.sec.gov, call 800-301-LIDO, or mail us at 1875 Century Park East Suite 950, Los Angeles, CA 90067.
The information contained herein reflects Lido’s views as of the date of this newsletter. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. Lido has obtained the information provided herein from various third-party sources believed to be reliable but such information is not guaranteed. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Lido is not responsible for the consequences of any decisions or actions taken as a result of information provided in this newsletter and does not warrant or guarantee the accuracy or completeness of this information.
Past performance is not indicative of future performance. The information in this report is for informational purposes only and should not be relied upon as the basis of an investment or liquidation decision. Nothing in this report shall be construed to be a solicitation to buy or offer to sell any security, product or service to any non-U.S. investor, nor shall any such security, product or service be solicited, offered or sold in any jurisdiction where such activity would be contrary to the securities laws or other local laws and regulations or would subject Lido to any registration requirement within such jurisdiction. All content herein has been obtained from sources deemed to be reliable, but is subject to unintentional errors, omissions and changes without notice, and is not warranted as to its accuracy or completeness. You should not rely on the information contained herein, and should rely solely on, and carefully read, the appropriate offering and related subscription materials relating to any specific investment product before making any investment decision.
Not all investments are suitable for all clients. It should not be assumed that any security listed or any recommendations made in the future will be profitable or without loss, including risk of loss of principal, or will equal any prior performance. All investments involve the risk of potential investment losses including the potential risk of loss of principal as well as the potential for investment gain. Further, the prior performance figures indicated herein represent portfolio performance for only a short time period and may not be indicative of the returns or volatility each portfolio will generate over a long time period. The performance of the portfolios should also be viewed in the context of the broad market and general economic conditions prevailing during the periods covered by the performance information. Any references to future returns/risk are not promises of the actual return the client portfolio may achieve. Before investing, investors should seek financial advice regarding the appropriateness of investing in any securities of investment strategies discussed. Not all investments are suitable for all investors.
The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.
Lido specifically disclaims any and all liability arising from the information or illustrations presented in these materials and is not responsible for the consequences of any decisions or actions taken as a result.
