UST

Scott Bessent worked at Soros Fund Management across two stints between 1991 and 2015, doing one thing supremely well: spotting the moment when a central bank had mispriced risk and the speculative position on the other side was too large to unwind gracefully. When that moment came, the correction was violent. The people positioned for it made fortunes. Bessent was one of the best. Now he runs the US Treasury. Japan holds roughly $1.2 trillion of American government debt, the largest foreign position — a mix of official reserves and private institutional holdings. If the yen weakens far enough, the private side of that equation starts to shift: life insurers and pension funds find hedging costs too high to justify holding US bonds, and new purchases dry up. US borrowing costs rise. ...

Scott Bessent has a problem his administration built for him. The Iran war launched on 28 February closed the Strait of Hormuz, removed roughly a fifth of the world’s daily oil supply and pushed Brent above $109 a barrel. The UST 10-year yield has risen to about 4.37%. Markets price zero Fed rate cuts for the rest of the year. Mortgage rates are climbing back toward levels that cost his party seats in previous cycles. ...

In a long-form interview from the Treasury’s Cash Room on 13 March, a week before the worst single-session bond selloff of his tenure, Bessent compared himself to a lifeguard. Drowning people pull you under, he told the interviewer. Your goal is always to save them. For fourteen months he has had solid ground. When JGB yields spiked in January on fiscal fears around the Takaichi snap election, he called Tokyo and the stress faded within days. When the carry trade wobbled in January, a Fed rate check on dollar-yen was enough. Those problems originated in places he could reach. ...

On Thursday Scott Bessent told Fox Business that the administration might “unsanction the Iranian oil that’s on the water.” One hundred and forty million barrels sitting in tankers at sea would be allowed to enter the open market. Buyers in Japan, India, Singapore and Malaysia could purchase the crude without fear of secondary sanctions. The proceeds would flow back to whoever holds title to the cargo. He offered no mechanism for confiscating revenues. No escrow. No condition excluding Iranian entities from the sale. “We’re not intervening in the financial markets,” he said. “We are supplying the physical markets.” ...

Ten days ago, Brent crude was $66. On Monday it touched $119.50 before settling around $93. The Nikkei 225 fell 5.2% on Monday. USD/JPY hit 159.14, one tick from what traders regard as the Ministry of Finance intervention threshold. The UST 10-year yield briefly breached 4.21% before pulling back to 4.13%. And yet the financial system did not crack. This article examines what Scott Bessent spent to keep it that way, what it reveals about the yen’s role in a crisis and why his binding constraint (the 10-year yield) is tighter now than it was before the first missile was launched. ...