U.S. yield curve twists expose Trump's and Bessent's rate dilemma: McGeever

The 10-year yield has reached 4.75%, an 18-month high. Bessent previously said he wanted the yield to have a "3" handle, meaning below 4%.

War, energy shocks, a yawning federal budget deficit, and market uncertainty over Warsh's overhaul of the Fed suggest that won't happen anytime soon. Indeed, a move to 5% now looks like the more immediate risk. That may have factored into Bessent's decision to intervene in the currency market to support the Japanese yen JPY=.

Washington's concern about further upward pressure on Treasury yields helps explain the rare coordinated action with Japan and the unusual use of a seldom-touched Fed facility. If Tokyo is to support the yen, Washington would prefer it does so without selling any of its $1.14 trillion U.S. Treasuries it holds.

On the domestic front, a surprise decline in July nonfarm payrolls, downward revisions to previous months, and below-forecast inflation prints have trimmed Fed rate-hike expectations. Only two quarter-percentage-point hikes over the next year are fully priced into interest rate futures markets, down from three a few weeks ago.