US Treasury market interventions show mixed results

Investing.com -- The US Treasury Department has conducted three direct market interventions over the past year with varying degrees of success, according to an analysis in the Financial Times by Mohamed El-Erian.

The interventions targeted the Argentine peso, US Treasury yields, and the Japanese yen. The peso intervention succeeded in its aims, while the effort to manage domestic bond yields failed to achieve its stated objectives. The yen intervention produced only temporary results.

In Argentina, the Treasury provided a dollar swap line to support the peso as currency depreciation drove inflation higher ahead of elections. Treasury Secretary Scott Bessent described the move as containing regional systemic risk. The peso stabilized and inflation moderated following the intervention. The success was helped by the small size of the Argentine foreign exchange market and President Javier Milei's policy stance.

The Treasury's attempt to manage US sovereign yields proved less effective. Bessent announced an expanded buyback program for long-dated bonds after yields rose sharply, citing the need to smooth "disorderly" moves during illiquid summer conditions. Yields across the curve rose about 0.5 percentage points in the weeks after the announcement.

The US Treasury market faces structural pressures including rising government bond issuance to fund a fiscal deficit of 6% of GDP, refinancing of maturing debt at higher rates, and heavy corporate borrowing for technology investments. Demand from some traditional buyers has declined.

The yen intervention was framed as protecting US trade from an excessively cheap currency. The yen initially appreciated but has since declined. The intervention also aimed to reduce the risk of higher US yields from Japan selling Treasuries to raise dollars for currency defense.

Bessent told Axios: "The house doesn't win every hand. The house plays percentages."

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