After exiting the European Exchange Rate Mechanism on September 16 1992, known as “Black Wednesday,” Scott Bessent learned that currency interventions require market credibility. Today, as US Treasury secretary, he faces a different challenge: stabilizing the world’s most critical bond market amid Treasuries’ weakness. Describing himself as America’s “top bond salesman,” Bessent aims to keep rates low, yet his recent actions have failed to address the root causes of turbulence.

Treasury fragility stems from persistent fiscal deficits driven by high spending and tax cuts, exacerbated by elevated interest rates. The buyer base is shifting from long-term holders like pension funds to volatile “hot money.” Furthermore, massive capital spending on AI data centers has created a bond glut, pitting sovereign issuers against corporate borrowers and pushing yields higher.

Bessent’s strategies, such as supporting the yen and proposing swap lines for Gulf allies like the United Arab Emirates, offer only temporary relief. While he recently increased purchases of long-dated bonds, the modest scale left markets largely unchanged. Complicating matters, new Federal Reserve chair Kevin Warsh has been unclear in his communications.

Ultimately, these measures are bandages on wounds caused by structural deficits and inflation. Sustainable stability requires fiscal prudence. Bessent has proposed limiting budget deficits to 3 per cent of GDP, roughly half the current level, urging the Trump administration and Congress to pursue this goal.