Here’s how US Treasury Secretary Bessent could tempt the 10yr yield back down
At a Glance
The desk interprets recent commentary by Padhraic Garvey regarding potential actions by US Treasury Secretary Bessent to lower the 10yr yield, emphasizing that aggressive buybacks and auction cancellations could impact long-end swap rates. Per the full note , the current landscape hints that while yields are not excessively high relative to SOFR rates, a significant Treasury market sell-off could provoke a much-needed adjustment. With upcoming targets for EUR/USD, GBP/USD, and USD/JPY also in play, the desk believes the Treasury might be considering interventions, albeit not until absolutely necessary.
Key Takeaways
Full Analysis
What the desk is arguing
The desk posits that while long-dated US Treasury yields have risen due to traditional inflation pressures and higher real rates, there remains room for intervention should market conditions deteriorate. Per the full note , Bessent’s potential strategy of employing larger buybacks and potentially canceling long-dated auctions could impact yields directly.
Notably, Garvey suggests that the 10yr SOFR rate is currently trading about 50 basis points too high, implying significant room for adjustment should the Treasury decide to act. This highlights a potential disconnect between government action and market realities that traders should monitor closely.
Where it sits in our coverage
The current spot for EUR/USD is at 1.1446, with a consensus median target of 1.1700 for March 2026, reflecting a range between 1.1200 and 1.2000. Notable firm targets include: - socgen: 1.1700 - morganstanley: 1.2000 - cibc: 1.1866
This view aligns moderately with the consensus, with the desk's scenario grounded in the possibility of yield adjustments that could reverberate through forex markets. The expected outcomes sit at the upper range of current consensus targets.
How other firms see it
Most firms are aligned around marginally strengthening the dollar against the euro, with socgen and morganstanley both projecting higher targets relative to the current spot. Conversely, firms like bofa suggest maintaining a more bearish view on the euro against USD, which contrasts with the desk's perspective.
Traders should keep an eye on US 10yr Treasury yield movements, as these directly correlate with the behavior of the EUR/USD and USD/JPY pairs, given their sensitivity to rate expectations and fiscal responses.
Market Implications
Traders should monitor the 10yr Treasury yield closely, particularly any signs of intervention from the US Treasury as these could lead to immediate shifts in forex pair valuations. The desk is specifically watching for levels around 4% on the 10yr yield.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bearish | 1.1140 |
ABN AMRO | Bullish | 1.1500 |
Bank of America | Bullish | 1.1500 |
From the original
Opinions Opinion by Padhraic Garvey, CFA Here’s how US Treasury Secretary Bessent could tempt the 10yr yield back down Yesterday, 19:15 Rates United States Most of the rise in long-dated rates reflects traditional printed inflation, reactive rate hikes and a persistence of higher
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