In 2026, the yield on long-term US Treasury bonds continued to rise, and the refinancing risk of the massive federal debt became a core problem for the US Treasury. US Treasury Secretary Scott Bessant has recently been engaged in share buybacks, pressuring Japan, and joint US-Japan intervention. What exactly is he doing? In fact, the market recognized the risks of US and Japanese debt long ago. We generally use the debt health formula of "government bond yield vs. GDP growth" to study the fundamentals of a debt situation. The underlying logic is to boost a country's economic growth and lower its debt interest rates, shifting the debt from "high-risk and unsustainable" to "benign and controllable," thus resolving the debt crisis at its root.

Domestically, the government is supporting the bond market through repurchase operations, proactively increasing demand in the US Treasury market.

To directly improve liquidity in the US Treasury market and boost demand for bonds, Bessant focused on implementing Treasury repurchase operations to precisely revitalize the bond market ecosystem. He explicitly stated that targeted repurchases of long-term bonds with low market liquidity would optimize the overall efficiency of the bond market, alleviate the pain points of sluggish long-term bond trading, stabilize the fixed-income market order, and proactively mitigate various negative market risks. Bessant also explained the deeper value of repurchase operations: this measure frees up available space on commercial banks' balance sheets, reduces the occupation of low-liquidity, low-yield assets, and helps banks optimize their asset structure. This not only releases banks' lending capacity and high-quality asset allocation capabilities, enhancing the operational flexibility of financial institutions, but also allows banks to increase their purchasing power in Treasury auctions, boosting demand for US Treasuries from both the secondary and primary markets, thus supporting Treasury bond prices and curbing disorderly yield increases.

Strengthening the fiscal fundamentals: Reducing the deficit, restoring tariffs, and rebuilding the government's confidence in repaying its debts.

Simple bond market instruments can only provide short-term stability. Bessant is simultaneously advancing fiscal reforms to fundamentally optimize the US debt fundamentals. Faced with the widening budget gap caused by this year's $70 billion tariff refunds, Bessant has outlined two core measures to proactively improve the government's revenue and expenditure structure. Firstly, the US will restart its tariff policy to broaden government revenue sources and offset budget deficit pressures. Secondly, it will vigorously promote reducing the US budget deficit as a percentage of GDP, tighten non-essential fiscal spending, and strictly control the scale of new debt. The core logic of this fiscal strategy is very clear: reducing the government deficit and increasing fiscal revenue can directly reduce the supply pressure of newly issued US Treasury bonds, avoid a surge in yields due to oversupply, and continuously strengthen the US government's debt repayment capacity. However, whether US government and military spending can truly be reduced, and the inflationary pressure from tariffs will also push up Treasury yields, so the overall effectiveness remains questionable.

Boosting economic growth expectations: Linking with the AI sector to reshape the logic of GDP growth.

The core of debt health is "growth rate exceeding interest rate." Simply cutting spending to stabilize the bond market is far from sufficient. Bessant places the core driver of economic growth on the US's core growth engine—the AI industry. He publicly and harshly criticized the current state of the AI industry, stating bluntly that his satisfaction with the external communication of AI companies was only a D-level. He criticized leading AI companies for ignoring community demands and failing to proactively communicate their industry value to the public. This explains why we often hear Nvidia boasting about how powerful AI is and how much money they make. Jensen Huang, a top student known for his problem-solving skills, understood the White House's intentions early on. Bessant explicitly requires AI companies to proactively explain the benefits of technological implementation and industry value, with the core objective of restoring market confidence in the AI sector. In his policy logic, AI is the core driver of US GDP growth. By reshaping market expectations for the AI industry and revitalizing its vitality, he can effectively boost the US nominal GDP growth rate, ensuring that "GDP growth consistently exceeds the yield on Treasury bonds," fundamentally rewriting the health attributes of US debt and weakening market concerns about US debt risks.

Key to Breaking the External Barrier: Closely Monitoring Japan and Controlling the External Supply of US Treasury Bonds at the Source

The biggest external variable affecting US Treasury bonds is Japan, the world's largest foreign holder of US Treasury bonds. Japan's exchange rate and monetary policy directly determine the scale of overseas US Treasury bond sales, which is also the core reason why Bessant has spent a lot of energy pressuring Japan. To stabilize the external supply of US Treasury bonds, Bessant launched a comprehensive game of maneuvering against Japan, from private pressure to public pronouncements, starting in May 2026. On May 11, Bessant had dinner with Japanese Finance Minister Satsuki Katayama in Tokyo for more than two hours, bluntly expressing his strong dissatisfaction with the economic policies of the Sanae Takaichi cabinet. He questioned the Japanese side on the spot why economic advisors around Sanae Takaichi continued to promote the benefits of a weaker yen. Bessant clearly pointed out the core problem: excessive depreciation of the yen not only exacerbates imported inflation in Japan, but also seriously damages US export interests, which is highly consistent with the Trump administration's long-standing economic stance towards Japan. He put strong pressure on Japan, stating that only a rate hike by the Bank of Japan could reverse the chaos, and directly questioned why Japan was restricting the Bank of Japan's policy autonomy. The following day, Bessant met separately with Satsuki Katayama and Japanese Prime Minister Sanae Takaichi, completing a multi-layered policy pressure campaign. In July 2026, the US and Japan jointly intervened in the foreign exchange market, with the US even selling euros to assist Japan in its market rescue efforts, all to stabilize the yen exchange rate and prevent Japan from massively selling US Treasury bonds to support the market. However, the intervention had extremely limited effect and failed to achieve a sustained recovery in the yen. This also confirmed Bessant's core judgment: relying on foreign exchange intervention to stabilize the exchange rate is only a short-term measure and cannot solve the fundamental problem. At that time, the interest rate differential between Japan and the US remained high (Japanese interest rate 1%, US interest rate 3.50-3.75%), and the root cause of the yen's depreciation pressure was Japan's continued loose monetary policy and expansionary fiscal policy. At the end of August, the G20 finance ministers and central bank governors meeting in Asheville, North Carolina, concluded, and Bessant made his months-long private pressure campaign completely public. At the press conference following the meeting, he explicitly stated that he had formally urged Japan to end its reflation policy and halt the large-scale monetary easing measures implemented under the framework of Abenomics to combat deflation. In Bessant's system, the historical mission of Abenomics has ended: Japan has long since escaped deflation; continued monetary easing and fiscal expansion will only exacerbate the depreciation of the Japanese yen, import inflation, force Japan to sell US Treasury bonds to stabilize the exchange rate, and continuously increase the external supply of US Treasury bonds, pushing up yields. Therefore, ending Japan's easing cycle and pushing Japan to tighten its policies is a key external lever to reduce selling pressure on US Treasury bonds and stabilize the US Treasury bond market.

Complete closed loop: Bessenter's ultimate logic for stabilizing the bond market

Looking at Bessant's entire operation, it formed a perfect closed loop of "increasing demand, reducing supply, boosting growth, and stabilizing debt." All actions ultimately served to reduce the risk of US debt and stabilize the US debt system: First, internally increasing demand: Treasury bond repurchases revitalized bank assets, increased demand for US debt, supported bond market prices, and suppressed yields; Second, internally stabilizing fundamentals: Restarting tariff increases and strictly controlling the fiscal deficit reduced the pressure of new debt issuance and optimized the government's debt repayment capacity; Third, internally boosting growth: Regulating the voice of the AI industry, rebuilding industry confidence, raising GDP growth expectations, and repairing debt health; Finally, externally reducing supply: Continuously pressuring Japan to exit quantitative easing and tighten fiscal policy, fundamentally preventing Japan from selling off US debt and reducing external supply pressure on US debt.

Summary of viewpoints:

Therefore, Bensent does not want the Federal Reserve to raise interest rates, because rate hikes would increase debt costs, exacerbate the sell-off of US Treasuries, restrict financing for AI companies, and affect labor market data, thus impacting the story of rapid US GDP growth. However, the main reason for the current sharp rise in Treasury yields is the concern about the US's debt repayment capacity. So, if Bensent can resolve the above issues, even a 25bp rate hike by the Federal Reserve could be interpreted as maintaining the Fed's complete independence, and US Treasury yields might actually fall. Bensent is attempting to offset the negative impact of a small Fed rate hike by comprehensively repairing the debt fundamentals, while preserving the Fed's policy independence and stabilizing global capital confidence. This policy combination of internal and external linkages can effectively stabilize the US Treasury market and restore market confidence in US debt in the short term. However, the entire system is highly dependent on the perfect implementation of various policies and the fulfillment of expectations. Fiscal policy implementation falling short of expectations, weak AI growth, limited effectiveness of the Japanese bargaining, and unexpected Fed policies are all potential risks in the future. But if there are positive developments, they could serve as a benchmark to significantly increase capital market confidence. But at least the US Treasury Secretary's logic is sound and he is making efforts. Going forward, we just need to keep a close eye on the corresponding indicators and make a clear judgment on the evolution of US debt risk. As the anchor of global assets, every intervention logic here will have a clear directional impact on US debt, which will ultimately affect assets such as gold, equities, and foreign exchange. If you encounter anything you don't understand, just refer to this article to find the relevant information.