Bessent, Bessent say mucho - Treasury Announces Increased Sizes of Nominal Long-End Liquidity Support Buybacks Beginning September 9

 

Why does Beady-Eye Bessent move revive the AI trade. A market turnaround was catalyzed by the Treasury Department's decision to double its repurchases of longer-dated government debt to improve liquidity, prompting an inverse drop in Treasury yields.

We are in a rally - a dance - that centers on the relationship between government bond yields and how high-growth tech companies are valued. Well, of course, there are other ways of looking at it.

But for argument' sake focus here: When the Treasury Department increases its debt repurchases (buybacks) it increases demand for those bonds. Higher demand drives bond prices up and, conversely, pushes bond yields down.

 

Why Scott Bessent Is Playing With the Treasury Market - WSJ - The simple explanation for all this is that the world is going into a new era of capital need, for data centers, the military and reshoring. writes James Mackintosh, WSJ. In other words, spending.

This drop in yields revives the "AI trade" and tech stocks for two primary reasons:

Lower Discount Rates Increase Present Value: High-growth technology and AI companies are heavily valued on their projected future earnings, often expected years down the road. Financial analysts determine the current value of a stock by discounting those future earnings back to the present day using a benchmark interest rate (like Treasury yields). When yields drop, the discount rate decreases, which mathematically raises the present value of those distant future cash flows, boosting tech stock valuations.

Shift Back to Growth Assets: When bond yields are high, investors can get a safe, guaranteed return from government debt, making risky growth stocks less attractive. When the Treasury's actions push yields lower, that guaranteed return becomes less appealing, motivating investors to shift capital back into higher-return risk assets like AI and technology leaders. Ultimately, the market turnaround wasn't triggered by specific AI sector news, but rather by macroeconomic relief.

https://www.notus.org/economy/economists-treasury-bond-market-buybacks-fix-short-term