The Treasury’s recent moves in the bond and currency markets add up to ‘soft-form financial repression’ to lower debt costs, economist warns

With U.S. debt hitting $40 trillion, markets are turning more attention to that burden and whether policymakers will address the root causes or just the symptoms.

The Treasury Department’s interventions in the bond and currency markets in recent weeks point to the latter.

Treasury Secretary Scott Bessent surprised Wall Street on Wednesday with a plan to increase buybacks of long-term bonds , after the 30-year yield hit the highest level in nearly 20 years.

That came just a few weeks after the U.S. and Japan took such joint action to boost the yen for the first time in three decades.

But to make it happen, the U.S. sold euros instead of dollar-denominated assets, avoiding a sale of Treasury securities that would put more upward pressure on yields.

Japan also refrained from selling Treasuries and instead tapped an obscure Federal Reserve tool called the Foreign and International Monetary Authorities Repo Facility (FIMA).

This mechanism allowed Japan, which is the world’s largest holder of U.S. debt, to borrow dollars against its Treasury stockpile, obtaining a limited form of liquidity.

According to George Saravelos, head of FX research at Deutsche Bank , “we see both the buyback and encouragement to use the FIMA facility for FX reserves as soft-form financial repression policies aimed at containing the long-end of the US yield curve.” Financial repression generally refers to policies that enable a government to keep interest rates artificially low by influencing financial markets.

Countries throughout history have practiced it, especially during times of high indebtedness.

In fact, the U.S. and other developed economies used financial repression to slash their debt-to-GDP ratios after World War II .

Indeed, conflict and calamities are major factors in financial repression.

A recent survey of 300 years of U.S. and U.K. history found that wars are “ always disaster times ” for holders of government debt because of inflation and financial repression.

It’s not good for currencies either.

Saravelos warned that suppressing U.S.