Why Bessent Blinked | Luke Gromen on Doubling of Treasury Buyback Plan to Tame Long-End Yields

The US attack on Iran was the event that broke the Treasury market in Luke Gromen's analysis. The 10-year yield stood at 3.94 percent the day of the attack and rose to nearly 4.74 percent by August 18, 2026, as the war strengthened the yen too much, raised energy costs, and destabilized yen and JGB markets. On August 19, 2026, Treasury Secretary Scott Bessent announced a doubling of the Treasury buyback program targeting the 10-year to 30-year sector. Gromen describes this as a soft form of yield curve control analogous to Operation Twist, and says Bessent acted because the 10-year approaching 4.8 percent created a debt spiral risk given net borrowing of 1.4 trillion dollars projected over the next two quarters.

Gromen places the critical threshold for the 10-year at approximately 4.8 percent, above which a debt spiral becomes self-reinforcing. Entitlements plus interest plus veterans benefits through fiscal third quarter already total 105 percent of receipts, with those obligations growing at 7.5 percent year to date against receipt growth of only 4 percent. Unfunded entitlement obligations are estimated at 100 to 200 trillion dollars. The mechanism of managing the long end by issuing more at the short end is inherently inflationary because those entitlement obligations are effectively indexed to real goods such as healthcare and inflation-adjusted Social Security payments, making them analogous to an emerging market hard-currency debt spiral.

Gromen is dismissive of Fed Chair Kevin Warsh as a genuine inflation hawk. Warsh co-authored a December 2018 op-ed with Stanley Druckenmiller urging rate cuts because bank stocks were down 15 percent from highs, said in his first press conference that the inflation target does not have to be 2.0 percent and could be 2.9, and refers to trimmed mean measures rather than actual inflation. Gromen says Warsh's stated willingness to intervene in a crisis to ensure a fair price for assets translates in practice to keeping yields low enough for the US government to afford interest payments, and that once a certain fiscal threshold is reached, the long end runs away regardless of whether Warsh is hawkish or dovish.

Gromen believes gold revaluation is a live policy option. Section 2.10 of the Federal Reserve Financial Accounting Manual states that gold is held at 42 dollars per ounce and that the Treasury Secretary at his sole discretion can instruct the Fed to revalue it. The US holds approximately 261 million ounces, meaning every 4,000 dollar increase in the gold price generates roughly one trillion dollars deposited into the Treasury General Account. Revaluing gold to 20,000 dollars per ounce would generate approximately five trillion dollars in TGA deposits and at that price would likely cover 100 percent of Treasury maturities over five to seven years. Bessent described himself as a gold bug in an April 2025 Tucker Carlson interview and said on April 7, 2025 that gold cannot have a fiscal problem, a giant budget deficit, or a war.

Gold is now a larger share of FX reserves than US dollars or Treasuries, making it the biggest reserve asset globally. Gold sold off during the Iran war period not because it failed as a reserve but because sovereigns needed to raise dollars or oil, and its sellability without banking pipelines meant no gold swap lines were needed. China responded by steadily increasing monthly gold purchases, with central bank buying in calendar Q2 returning to basically all-time highs. Since 2014 global central banks stopped buying Treasury bonds on net, and in gold terms TLT is down 90 to 95 percent since then.

The yen and dollar dynamics present a narrowing corridor with no safe direction. If the yen weakens too much, the dollar strengthens and Japanese investors sell Treasuries to cover positions. If the yen strengthens too much, yen carry trade unwinds trigger global selling of stocks and bonds. Foreigners hold approximately 13 to 14 trillion dollars in dollar borrowings offshore and own 9.5 trillion in US Treasuries, meaning a dollar that is too strong causes foreign borrowers to sell Treasuries and stocks to cover their short dollar position. Gromen says this corridor keeps narrowing as debt grows.

Gromen's preferred positioning is long stocks in dollars, short stocks in gold, and avoiding the long end of the yield curve. He expects long-end bonds to lose 90 to 95 percent of their value against gold over time, driven mostly by gold rising rather than nominal bond price declines. He contrasts gold with Treasuries structurally: gold carries zero yield, infinite face value, infinite duration, and finite issuance, while Treasuries carry finite face value, finite duration, and infinite issuance. His prediction framework is that whether the 10-year yield breaches 4.8 percent and triggers a debt spiral or authorities inject liquidity to stop it there, the right trade in either scenario is to own gold.