Bezent's former mentor criticized: it was a mistake to buy back US bonds! Defying fundamentals and depressing returns “will eventually fail”

The Zhitong Finance App learned that there was a rare public “mentor-apprentice disagreement” between one of Wall Street's most respected macro investors and US Treasury Secretary Bezent. On August 24, Stanley Druckenmiller (Stanley Druckenmiller) pointed out through a column that Bezent's expansion of long-term treasury repurchases was a “much more serious mistake than the $4 billion implied.” Drucken Miller was Bezent's mentor during his tenure at Soros Fund Management more than 30 years ago. The relationship between the two has made this criticism far more important than ordinary market reviews.

“Governments that try to counter fundamentals by manipulating prices will always fail,” Drucken Miller wrote. Based on his 50-year trading career, he emphasized that “the market brings together information that no committee can have, and price is how this information is conveyed to decision makers.” In his view, the 30-year US bond yield hitting a 19-year high is not a market failure, but rather a “warning signal” from the bond market against Washington's fiscal discipline — the fiscal deficit accounts for about 6% of GDP, total treasury bonds exceed 40 trillion US dollars, and higher borrowing costs are a way for the market to force the government to rectify its finances.

Drucken Miller characterized Bezent's buyback operation as “price management disguised as liquidity support.” He cited a key fact — the 30-year US Treasury yield fell briefly after the announcement, but fully recovered in less than 12 hours — this market price fluctuation itself is the most direct negative of the buyback effect. He believes that real liquidity management should intervene when the market fails (such as auctions fail, buyers disappear), rather than intervene when the government is unhappy with the direction of yield.

Drucken Miller specifically warned that long-term US bond yields are “the only existing fiscal restraint mechanism in the US.” Artificially depressing yields will remove the political impetus from politicians to address structural deficits. He compared it to the yield ceiling control implemented by the Federal Reserve from 1942 to 1951 during World War II for financing. The policy ultimately required the 1951 “Treasury-Federal Reserve Agreement” to be lifted. He also pointed out that the Ministry of Finance uses short-term treasury note financing to support long-term bond buybacks, essentially running a form of quantitative easing outside the Federal Reserve — which further blurs the line between fiscal and monetary policy.

Drucken Miller's criticism is not limited to theory. He believes that buybacks are unreasonable in the current context — the 10-year yield is currently roughly close to the nominal growth rate of the economy, which means that the financial environment is relaxed rather than restrictive. He said bluntly that this is not putting out a market fire, but “unplugging the smoke alarm because I don't like the sound of it.”

Bezent's response to the repurchase operation sought to tone down the intervention. At a press conference on August 24, he said that the Ministry of Finance “has not bought any treasury bonds in the expanded treasury bond repurchase program” and that the next operation will have to wait until September 9. He also emphasized that the bond sale will “proceed according to the regular issuance plan”, implying that the specific arrangements will not be revealed until next quarter's refinancing announcement.

However, Bezent's reassurance did not quell the market's concerns. At the time of Drucken Miller's criticism, the 30-year US Treasury yield once again broke through 5.3% on August 24, indicating that any relief brought about by the buyback was extremely short. Castle Securities called the buyback program a “financial suppression,” warning that it could weaken the dollar and increase inflation. Drucken Miller's intervention elevated this debate over “whether the Treasury has crossed the border” from a corner of the market to the core debate on Wall Street. The central question he raised — whether Washington is using short-term tactics to cover up structural fiscal problems — is gaining increasing resonance in the context of $40 trillion in debt and a deficit close to 6%.