Subscribe
Share
Share
Embed
Podcasts from Confluence Investment Management LLC, featuring the periodic Confluence of Ideas series, two bi-weekly series: the Asset Allocation Bi-Weekly and the Bi-Weekly Geopolitical Report (new episodes posted on alternating Mondays), and a new monthly Q&A format called the Confluence Mailbag.
Welcome to the Confluence Investment Management Asset Allocation Bi-Weekly report for 09/21/2026. I'm Phil Adler. As of mid September, The US bond market seems to be immune to efforts by Treasury Secretary Scott Bessent to bring yields down. Confluence Associate Market Strategist and Certified Business Economist Thomas Wash joins us today to discuss the current state of the bond market and how investors might respond. Thomas, bond yields rose even though the treasury department announced plans to triple the size of ten to twenty year securities that it plans to buy back.
Phil Adler:What was Treasury Secretary Bessent's goal? How did he hope the bond market would respond?
Thomas Wash:Thank you for having me, Phil. His primary goal was to reset market expectations and assist with price discovery. Scott percent view recent market anxieties, specifically around rising energy prices and growing US debt, as driven more by emotion than economic fundamentals. By stepping in with direct buybacks, he hoped to calm those fears and push bond yields lower.
Phil Adler:And remind us, what happened instead?
Thomas Wash:Well, the market essentially ignored that play. Instead of yields falling as the treasury likely expected after injecting liquidity, they surged to their highest level since November 2023. That sudden jump caught markets off guard, sparking fears over rising corporate borrowing costs and triggering a brief and minor sell off in equities.
Phil Adler:Why didn't yields come down the way secretary Besson hoped?
Thomas Wash:Personally, I think timing was the biggest factor. Hostilities in The Middle East escalated right around the announcement leading investors to price in the risk of higher energy costs feeding into inflation. Had those geopolitical tensions not worsened simultaneously, the buybacks might have worked. But as it stands, geopolitical risks simply outweigh treasury's intervention.
Phil Adler:Thomas, what's the history of these types of actions? Have similar efforts to manage federal debt on a on a short term temporary basis during times of rising long term yields worked in the past?
Thomas Wash:Yeah. Yeah. They they have. Debt buybacks were heavily utilized under former treasury secretary Janet Yellen to ease yield pressures by purchasing long dated bonds and funding them with short dated bills. While critics dubbed it activist treasury issuance, the strategy was effective at the time in pulling down long term yields.
Phil Adler:What's different this time?
Thomas Wash:You know, there are two key things that come to mind, economic expectations and available liquidity. When buybacks started in 2024, growth expectations were lower than than they are today, which helped pull down long term inflation outlooks. Furthermore, Yellen had access to a massive pool of cash parked in the reserve repo facility to absorb new bill supply. Today, that facility is largely drained, leaving percent far less structural flexibility to pull off the same maneuver without relying on Fed balance sheet expansion.
Phil Adler:Thomas, are investors simply spooked by the lengthening Iran war ballooning US debt and inflation, and and these take precedence over these efforts to manage the debt?
Thomas Wash:Precisely. Headline risks around war, debt, and inflations are dominating price action. On top of that, growth expectations have actually pulled up alongside fears of overheating. Investors simply doubt whether short term debt management can offset those broader macroeconomic realities.
Phil Adler:And I was wondering, were the treasury secretary's actions seen as alarming perhaps, thus worsening market sentiment and adding to the pressure on yields?
Thomas Wash:You know, there's definitely some pushback. For decades, the consensus has been that markets operating on complete information are best equipped to price risk without direct government intervention. Now, by stepping in to guide yields back to what he considers equilibrium, Secretary Bissent is challenging that model, which makes some market participants uneasy.
Phil Adler:What choices, Thomas, are left now for the treasury secretary?
Thomas Wash:Well, I I think Bassett will likely take a wait and see approach. Given the market's adverse reaction, running another intervention immediately could be counterproductive. That said, the treasury general account remains well capitalized, so he still has plenty of firepower available if conditions stabilize enough to try again.
Phil Adler:Does this environment create any opportunities for bond investors?
Thomas Wash:You know, it does, actually. Today's yields are driven more by geopolitical uncertainty than fundamental supply issues. If the Middle East conflict deescalates, duration treasuries at these levels look rather cheap and offer significant upside. However, if energy prices surge further past a $100 a barrel, bond prices could face further downward pressure.
Phil Adler:At what point, Thomas, might rising yields threaten the broader stock market?
Thomas Wash:So, you know, we're already seeing impact in higher risk assets that are sensitive to discount rates. A brief period of elevated yields won't derail equities, but the longer borrowing cost they elevated at these levels, the greater the drag on corporate earnings and broader equity valuations.
Phil Adler:Thank you, Thomas. The title of this week's report is breaking the bond fever, and you can find a link to the written report on the Confluence webpage, confluenceinvestmentcom. Our discussion today is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
Phil Adler:Our audio engineer is Dane Stole. I'm Phil Ampler.