Treasury Twist: Was Scott Bessent Right After All

On August 19, 2026, the US Treasury Department announced that it was doubling the size of its “liquidity support” for long-dated US Treasuries from USD 2 billion to USD 4 billion per operation. The news prompted a considerable vocal reaction in the market. It was far greater than the price action it triggered. Some public figures even accused the US Treasury and its Secretary, Mr. Scott Bessent, of overreach.

We believe that the criticism is unwarranted or, at the very least, misdirected. Here’s why:

First: Why Scott Bessent’s Operation Twist Makes Economic Sense

It is the job of every Treasury Department in every large company to manage the company’s corporate debt. When interest rates are low, issue long-dated bonds and retire short-dated debt. On the other hand, when interest rates are high, purchase long-dated bonds (usually at a discount) while issuing shorter-term debt.

What the US Treasury is doing at present is nothing short of good debt management. While the US Treasury Department and Mr. Scott Bessent have been attacked for potential overreach, few have attacked the economics of “Treasury Twist” — because it does make economic sense.

Second: Long-Dated Treasury Bonds Are Only About 10% of Total US Government Debt

Much has been said about the level of US government debt, but very little about its duration. The majority of US government debt is actually much shorter-dated than most people expect. In fact, it has an average maturity of roughly 5 to 7 years.

US government bonds with maturities of more than 20 years represent only about 10% of total publicly issued US government debt, or around USD 3 trillion. Total US government debt is around USD 40 trillion. Debt held by the public is around USD 32 trillion. The remainder consists primarily of intragovernmental holdings.

So, even if long-dated yields were to soar to 6% or even 7%, as some critics claim they should, the impact on the US government’s average borrowing rate might not be as high as expected. It therefore might not trigger the fiscal “wake-up call” that critics expect. This would undercut the core argument against Scott Bessent’s approach.

Third: Long-Dated Treasury Yields Directly Impact Mortgage Rates

If long-dated Treasury yields were to soar to 6% or 7%, the US Treasury could simply reduce its issuance of long-dated bonds. However, what would occur almost immediately is significant upward pressure on mortgage rates. This could potentially push them toward 8%, 9%, or perhaps even 10%.

Yes, while high long-dated interest rates may or may not spur a change in US government spending policies, they would almost certainly have an outsized negative impact on the US housing market. This is a trade-off Scott Bessent’s critics tend to overlook.

Fourth: Volatility in Long-Dated Yields Can Have a Lasting Impact on Future Demand

Suppose the critics get their way and US long-dated government bond yields do rise to 6% or perhaps even 7%, eventually spurring a change in US government spending. Let us be even more optimistic and assume that those changes do lead to a situation in which US government debt growth is no longer out of control. In this case, debt instead grows proportionally with GDP.

However, such an event could trigger a more permanent repricing of long-dated US government bonds. A permanently higher risk premium on long-dated US government bonds would mean, by extension, a higher premium on long-dated corporate and mortgage bonds.

High realized historical volatility tends to have a lasting impact on the risk premium investors demand in the future. This is precisely the scenario Scott Bessent’s strategy is designed to avoid.

Scott Bessent Made the Right Call

In conclusion, we believe that the criticism directed toward Scott Bessent and the US Treasury Department’s “Operation Twist” is unwarranted or, at the very least, misdirected.

Treasury Twist is, in essence, what every good corporate Treasury department does — carefully managing the term structure of its obligations in a high-interest-rate environment.

The most important considerations should be whether the operation makes economic sense and whether it can reduce future borrowing costs.

We believe the answer to both questions is yes.

Operation Twist does make economic sense, and by reducing volatility in long-dated US Treasuries, it may also help keep future borrowing premiums lower.

Disclaimer