Dear Valued Clients and Friends –
Today’s Monday Dividend Cafe does the normal around-the-horn, but there is primarily a [needed] focus on Secretary Bessent’s announcement about Treasury interventions into the bond market.
Dividend Cafe on Friday covered Part 1 of a two-part series on dividend growth investing, how I came to that philosophy, and why I believe the strategy (when executed well) is such a faithful application of our underlying philosophy. The written version is here (my favorite), the video is here, and the podcast is here.
Off we go …
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Market Action
- Markets opened up a hundred points this morning and zigged and zagged a bit throughout the day before closing pretty near where it opened.
- The Dow closed up +140 points (+0.26%) with the S&P 500 down -0.28% and the Nasdaq down -0.77%
*CNBC, DJIA, Aug. 24, 2026
- After last week’s sell-off, we are down to 50% of the names in the S&P 500 above their 20-day moving average.
- For all the talk about “bond market volatility,” did you know that the 10-year has stayed within a 130 basis point range for three years now, one of the narrowest ranges over three years in the history of the bond market?
- The ten-year bond yield closed today at 4.70%, down 3.8 basis points on the day
- Top-performing sector for the day: Consumer Staples (+1.76%)
- Bottom-performing sector for the day: Technology (-1.59%)
The Treasury Department, Bond Yields, and More
- I appeared on 2Way Friday morning to discuss what is going on with Secretary Bessent’s decision to have the Treasury Department buy 30-year Treasury bonds as a means of intervening in the market of long-term bond yields. I have devoted a whole subject to it here today because I think it is that important. The major bullet points, in no particular order of importance:
- First, what are they doing? The Treasury Department is effectively buying back 30-year Treasury bonds ($2bn now, and said it will go up to $4bn in September). The action itself is an attempt to bring down rates at the long end of the yield curve, and the “announcement” of “might be more to come” is an attempt to use “forward guidance” to impact policy. It is, essentially, an “Operation Treasury Twist” – where, unlike the Bernanke Operation Twist of post-GFC (where the Fed altered their QE purchases to impact the shape of the yield curve), this is the Treasury Department trying to do it. A key difference: The Treasury can’t make money to do it, so it has to issue short-term bonds to pay for its purchase of long-term bonds. If I were summarizing it in one sentence, it would be, “The Treasury Department is consciously and purposely trying to manipulate term premium in the bond market to effect a policy objective.”
- Then, why? Secretary Bessent’s explanation was that “markets were getting it wrong” (when long bond yields moved marginally higher in the last week or so). My belief is that mortgage rates are connected to the long bond, and it is a focus for concern with the administration to try and bring those down.
- Next, did it work? The 30-year Treasury yield was 5.31% on Tuesday. It was 5.28% on Wednesday when the announcement was made. It dropped to 5.18% for a short period on Wednesday after the announcement. By Thursday it was back to 5.25%, and at the close Friday it had fully round-tripped (48 hours) back to 5.28%. At today’s close it was 5.23%.
- Can it work longer term? It is not my opinion that the government can or should attempt to do what market forces will not do for them. They shouldn’t, because it represents a distortion and intervention that comes at a cost. They can’t, because prices are discovered, not imposed, and that includes the price of money. Secretary Bessent was a global macro trader in a past life, and I have no doubt that he knows how to get the market’s attention for short-term trades. But no, I do not believe this can work beyond a trade, because what sets the price of money long-term is expectations for nominal GDP growth, not short-term trading.
- Why are long-bond yields going higher? This invites a lot of different opinions, and all I can do is share mine. I do have a lot of confidence in my opinion (or I wouldn’t have it), but I recognize these things are not able to be empirically established (the why of a given thing in financial markets). There are some who say that the U.S. national debt is so high, it has pushed long bonds higher. I find this to be the silliest of explanations – that the national public debt went up $25 trillion over a ~20-year period and all of a sudden, in the last few months, bond markets got worried about it, and got so worried that they pushed the long-bond yield to … the same place it was when the debt was $8 trillion? I do not think the bond market likes the national debt, and I do not think any of us should either. And I think the national debt is a massive compressor of U.S. economic growth. But all of a sudden pushing bond yields up? Like, $39.9 trillion was okay, but that $40 trillion mark, that’s a dealbreaker? It makes no sense. Rather, the two most logical explanations in my humble opinion are:
- The relative illiquidity of the 30-year maturity market. It does not trade a lot, and it is not the instant cash barometer that T-bills are (the deepest and most liquid financial market in the world), nor is it the benchmark for most lending that the 10-year is. Only 5% of our $32.5 trillion Treasury market exists in these maturities. It is just a thin, inefficient market, so bond yields moved disproportionately to other spots of the curve
- There has been an explosion of bond issuance that has created competition for Treasuries. New supply pushes prices down, which means higher yields. Has this competition been from Germany, or Japan, or some other global sovereign issuer? No. It has been from AI hyperscalers. Highly profitable issuers with very high credit ratings issuing a ton of new debt that was previously not imaginable – this is, I believe, a very underrated element of what has transpired in bond markets.
- I said two reasons, but I will add: there is a school of thought that Fed Chair Warsh has caused this by “not giving insight into what the Fed is going to do” – creating an uncertainty premium in yields on the long end of the curve. Here again I am skeptical, as it does not pencil for me that the height of this alleged uncertainty about what the Fed will do with overnight lending rates would be captured in the long end of the curve
- What are the concerns? It is hard for me to hear a Treasury Secretary justify market interventions by saying, effectively, “we know better than markets.” I do not believe that has historically gone well. Secretary Bessent saying music to my ears 18-24 months ago when he talked about a “3-3-3” plan (3% real GDP growth, deficits down to 3% of GDP, and increasing energy production 3 million barrels per day); Those were fundamental economic objectives. This bond intervention is the opposite of economic fundamentals; it is, rather, market distortion
- But the conclusion? Ultimately, $2 billion and possibly $4 billion of bonds being bought (by issuing new short-term debt to pay for it) in the context of a $32 trillion Treasury bond market is just peanuts, and even that is exaggerating. It is flashing a gun around that markets know has no bullets in it. The Fed can print money. The Fed always has bullets. Markets know the Fed has bullets. This was, more or less, purely cosmetic. I am disappointed in what was said to rationalize it, but not of the belief that it becomes a serious thing.
Public Policy
- The Trump administration stated over the weekend that import taxes of 50% were being assessed on various imports from Canada based on trade talks breaking down. The items involved include plywood, liquor, electrical equipment, auto parts, and hockey gear. On Saturday, Prime Minister Mark Carney said that Canada would apply dollar-for-dollar retaliatory tariffs on U.S. imports (beginning September 8). I believe what matters next is whether or not a trade war spirals. $25 billion of this level of tariffs, each way – so $50bn total- is substantial, but not near the total of $900 billion of goods and services that Canada and the U.S. trade with each other each year. Of course, the way these things have gone for quite some time is that after all the headlines and announcements, often a deal of sorts is struck (or stand-down) that keeps the worst outcome from happening. For what it’s worth, the odds are overwhelmingly against a full trade war ensuing.
- Secretary Bessent held a press conference this morning to announce “a financial offensive” against Iran to significantly damage the economy of Iran.
Economic Front
- We will get the PCE inflation report and Durable Goods orders for the prior month this Wednesday
Federal Reserve
- All eyes are on Jackson Hole, WY this Friday when Chairman Warsh will speak at 10 am ET. Will markets view the Chairman as hawkish, dovish, or uncertain after his speech? Does “hawkish” have to mean “hiking rates at the next meeting” or could there be more nuance? Will there be clarity or ambiguity? And how will markets react? Jackson Hole has created a snooze-fest for the vast majority of the last 15+ years. 2022 and 2010 were notable exceptions. 2026, we shall see …
Oil and Energy
- WTI Crude closed at $84.78, down -2.6% on the day
- Midstream was down about -1% last week despite oil being up +6.6%, as the S&P 500 was down -1.4%.
Ask TBG
| “I saw the announcement that the US Treasury unexpectedly announced it is ramping up buybacks of long-dated government debt which doesn’t make sense to me. Since the government is running a deficit, how will they pay for this? Short term debt would be my guess. It still appears they are selling new long term debt. So they are buying back long term debt at the same time they are issuing more? Why wouldn’t they just issue less new long term debt instead?” ~ Bret B. |
| They’re buying long-term debt with proceeds from new short-term debt issuance. That is a conscious decision – to try and bring long-term rates lower with either their interventions or the market’s perception of future interventions. They are not reducing debt in any scenario – only reducing the term structure of the debt (and even that, barely at all). |
On Deck
- Nvidia will announce its quarterly results on Wednesday after the market closes.
- Dividend Cafe on Friday will be a “part two” around dividend growth investing, capturing some of the arguments made in my new book, Profit from the Profit: The Past, Present, and Future of Dividend Growth Investing.
More to Chew on
- I thought about including this in the Markets section. It is worth chewing on, as the entire AI debt story is. More to come.
- College. Football. Starts. This. Weekend.
Enjoy your Monday night and reach out with any questions, any time!
With regards,
David L. Bahnsen
Chief Investment Officer, Managing Partner
The Bahnsen Group
www.thebahnsengroup.com
The Dividend Cafe features research from S&P, Baird, Barclays, Goldman Sachs, and the IRN research platform of FactSet.
