Bessent isn’t stalling? He really wants to save America’s trillion-dollar debt

FX168 Finance September 3—— What is Treasury Secretary Bessent busy with? Pressuring Japan, buying back US Treasuries, angrily criticizing AI companies? What does all this have to do with our investments?

In 2026, the yield on long-term US Treasuries continues to rise, and the refinancing risk of the federal government's massive debt has become the core challenge of the US Treasury Department. Recently, Treasury Secretary Scott Bessent has been engaging in buybacks, pressuring Japan, and coordinating joint US-Japan interventions. What exactly is he doing?

In fact, the market has long been aware of the risks associated with US and Japanese debt. We usually use the "government bond yield vs. GDP growth" debt health formula to study the fundamentals of debt.

The core logic is to boost a country's economic growth and suppress its debt interest rates so that the country's debt transitions from "high risk and unsustainable" to "benign and controllable," addressing the debt crisis at its root.

Stabilizing the Domestic Bond Market: Treasury Buyback Operations, Proactively Increasing Demand for US Treasuries

To directly improve liquidity in the US Treasury market and boost demand for bonds, Bessent has focused on implementing Treasury buybacks, strategically revitalizing the bond market ecosystem.

He explicitly stated that he will selectively repurchase long-term bonds with low market liquidity, optimize the overall efficiency of the bond market, alleviate trading bottlenecks in long bonds, stabilize the fixed income market order, and preemptively avoid various negative market risks.

Bessent also explained the deeper value of the buyback operation: this measure can free up usable space on commercial banks' balance sheets, reduce the occupation of low-liquidity, low-yield assets, and help banks optimize their asset structure.

This not only enhances banks' ability to issue loans and allocate high-quality assets, improving the operational flexibility of financial institutions, but also allows banks to increase their underwriting strength during Treasury auctions. In both the secondary and primary markets, this effectively increases demand for US Treasuries, supports the price floor for bonds, and restrains yields from rising disorderly.

Consolidating Fiscal Fundamentals: Reducing the Deficit, Reinstating Tariffs, Restoring the Government’s Debt-Servicing Capacity

Purely using bond market tools can only stabilize the situation in the short term. Bessent is also advancing fiscal reforms to fundamentally improve the US debt fundamentals.

Facing an expanded budget gap this year due to $7 billion in tariff refunds, Bessent has clarified two core measures to proactively improve the government's income and expenditure structure.

On one hand, the US will restart tariff policies to broaden sources of fiscal revenue and buffer budgetary pressure; on the other, it will make all efforts to reduce the US budget deficit as a share of GDP, tighten unnecessary fiscal spending, and strictly control the scale of new debt.

The core logic of this fiscal strategy is clear: reducing the government's deficit and increasing fiscal revenue can directly ease the supply pressure of new Treasuries, avoid oversupply-induced yield spikes, and continuously strengthen the US government's debt-servicing capacity.

However, is it really possible to reduce US government and military expenditures? The inflationary pressure brought by tariffs could also push up Treasury yields. Therefore, it remains a question whether the overall plan will be effective.

Boosting Economic Growth Expectations: Embracing the AI Sector, Reshaping the Logic of GDP Growth

The essence of debt health is "growth rate greater than interest rate." Relying solely on austerity to stabilize the bond market is far from enough. Bessent places the core driver of economic growth on the AI industry, America's pivotal growth engine.
He has publicly issued harsh judgments on the current state of the AI industry, bluntly rating AI companies' public communication satisfaction as D-level, and criticizing leading AI firms for ignoring community demands and being passive in conveying industry value. That's why we often hear Nvidia boasting about the power of AI and its profitability—Jensen Huang indeed excels at understanding the White House’s intentions early on.

Bessent explicitly demanded that AI companies proactively explain the tangible benefits and industrial value of their tech applications to the public, with the core goal of restoring market confidence in the AI sector.

Within his policy logic, AI is the core engine for US GDP growth. By reshaping market expectations for the AI industry and stimulating industrial vitality, it is possible to effectively boost US nominal GDP growth, keeping “GDP growth higher than Treasury yields,” thus fundamentally improving the health of US debt and alleviating market concerns about US bond risks.

Key Breakthrough Externally: Focusing on Japan, Managing External US Treasury Supply at Its Source

The greatest external variable for US Treasuries is Japan, the world’s largest foreign holder of US debt.

Japan’s exchange rate and monetary policy directly determine the scale of foreign US Treasury sales, which is why Bessent devotes considerable effort to pressuring Japan.

To stabilize the external supply of US Treasuries, Bessent launched a full-scale strategy of private and public pressure on Japan starting in May 2026.

On May 11, Bessent had dinner with Japanese Finance Minister Satsuki Katayama in Tokyo for over two hours, plainly expressing his strong dissatisfaction with Sanae Takaichi’s cabinet economic policies. He directly questioned the Japanese side: why do Takaichi's economic advisors continue to tout the benefits of a weaker yen?

Bessent pinpointed the core issue: excessive yen depreciation not only intensifies imported inflation in Japan but also seriously harms US export interests, aligning closely with the Trump administration’s long-standing stance on Japan. He exerted strong pressure on Japan, demanding that only a rate hike by the Bank of Japan could correct the disorder, and questioned why Japan restricted the independence of the Bank of Japan’s policy.

The next day, Bessent had separate meetings with both Satsuki Katayama and Prime Minister Sanae Takaichi, completing multi-level policy pressure.

In July 2026, the US and Japan jointly intervened in the FX market, with the US even willing to sell euros to coordinate support for the yen, all aimed at stabilizing the yen’s exchange rate and preventing Japan from selling large amounts of US Treasuries to prop up the yen. However, this round of intervention was extremely limited in effect and failed to produce sustained appreciation of the yen.

This outcome confirmed Bessent's core judgment: using FX intervention to stabilize exchange rates is only a short-term tactic and cannot resolve the root problem. At the time, the Japan-US interest rate differential remained high (Japan at 1%, US at 3.50–3.75%), and the depreciation pressure on the yen stemmed fundamentally from Japan’s continued loose monetary and expansionary fiscal policies.

In late August, the G20 Finance Ministers and Central Bank Governors Meeting in Asheville, North Carolina concluded, and Bessent took his months-long private pressure campaign to the public.

At the post-conference press briefing, he made it clear that he has formally urged Japan to end its reflation policy and halt the large-scale monetary easing introduced under Abenomics to combat deflation.

In Bessent’s view, the historical mission of Abenomics has ended: Japan has long escaped deflation, and continued loose monetary and fiscal expansion will only accelerate yen depreciation, import inflation, and force Japan to sell US Treasuries to stabilize the currency. This increases external supply and pushes up US Treasury yields.

Therefore, ending Japan’s easing cycle and pushing for tighter policy is the key external lever to reducing selling pressure on Treasuries and stabilizing the market.

Complete Cycle: Bessent’s Ultimate Strategic Loop for Stabilizing the Treasury Market

Reviewing Bessent’s entire operational plan reveals a “boost demand, curb supply, drive growth, stabilize debt” closed loop. All actions ultimately serve to lower Treasury risk and stabilize the US debt system:

First, boost internal demand: Treasury buybacks revitalize bank assets and increase demand for Treasuries, supporting bond prices and suppressing yields;

Second, stabilize fiscal fundamentals internally: restart tariff increases, strictly control the fiscal deficit, reduce new debt issuance pressure, and optimize official debt-servicing capacity; then drive growth internally: regulate AI industry messaging, restore sector confidence, raise GDP growth expectations, and improve debt health;

Finally, externally curb supply: continue to pressure Japan to exit easing and tighten fiscal policy to prevent Japanese Treasury sales at the source, reducing external Treasury supply pressure.

Conclusion:

This is why Bessent does not want the Fed to raise rates—hikes push up debt servicing costs, intensify Treasury sell-offs, restrict AI industry financing, and suppress labor market data, all of which impact the US’s high-growth GDP narrative.

However, the main reason for the recent sharp rise in Treasury yields is still concern over the US’s debt-paying ability. If Bessent can address the above issues, even a 25bp rate hike by the Fed could be interpreted as maintaining the Fed’s independence, potentially causing yields to fall.

Bessent is trying to offset the negative impact of modest Fed rate hikes by comprehensively repairing debt fundamentals while preserving the Fed’s policy independence and stabilizing global capital confidence.

This multi-dimensional policy mix can effectively stabilize the Treasury market and restore confidence in US debt in the short term.

However, the whole system heavily depends on perfect implementation and outcomes of each policy. Fiscal underperformance, lackluster AI growth outcomes, limited impact from the Japan gambit, or unexpected Fed moves are all future risk points. If positive results emerge, it could significantly boost capital market confidence as a benchmark.

At the very least, the Treasury Secretary’s logic is coherent and proactive. Next, just monitor the related indicators to clearly judge the evolution of US Treasury risk. As US Treasuries remain a global benchmark asset, each intervention logic outlined here will have a clear directional impact on Treasuries, ultimately affecting gold, equities, FX, and other assets. When faced with uncertainty, just refer back to this article for comparison.