Bessembinder's former mentor sharply criticized: Buying back U.S. Treasury bonds is a mistake! Defiance of fundamentals keeps yields low and will "ultimately be defeated."

One of Wall Street's most respected macro investors has engaged in a rare public "mentor-mentee fallout" with U.S. Treasury Secretary Janet Yellen. On August 24, Stanley Druckenmiller, in a column, pointedly criticized Yellen's decision to expand the long-term Treasury buyback program, calling it "a mistake far more serious than the $4 billion implies." Druckenmiller was a mentor to Yellen over thirty years ago during her time at Soros Fund Management, and their relationship gives this criticism significantly more weight than typical market commentary. "Governments that try to manipulate prices to counteract fundamentals always fail," Druckenmiller wrote. Citing his 50 years of trading experience, he emphasized that "the market aggregates information that no committee could possess, and prices are the way that this information is communicated to decision-makers." According to him, the 30-year Treasury yield reaching a 19-year high is not a market failure, but rather a "warning signal" from the bond market about Washington's fiscal disciplinewhere the fiscal deficit is about 6% of GDP and total national debt has exceeded $40 trillion; the higher borrowing costs are a way for the market to force the government to get its finances in order. Druckenmiller characterized Yellen's buyback operations as "price management disguised as liquidity support." He pointed to a key factthe 30-year Treasury yield, although it briefly retreated after the announcement, completely recovered its losses in less than 12 hoursarguing that this price fluctuation itself is the most direct negation of the buyback's effectiveness. He believes true liquidity management should intervene during market failures (such as auction failures or buyer disappearances), rather than interfere when the government disapproves of the yield direction. Druckenmiller specifically warned that long-term Treasury yields are "the only remaining fiscal constraint mechanism in the U.S." Artificially lowering yields would eliminate the political incentive for politicians to address structural deficits. He likened this situation to the interest rate caps imposed by the Federal Reserve from 1942 to 1951 during World War II to finance war spending, which ultimately required the 1951 Treasury-Fed Accord to be lifted. He also pointed out that the Treasury's financing of long-term bond buybacks with short-term Treasury bills effectively operates as a form of quantitative easing outside the Federal Reservefurther blurring the line between fiscal and monetary policy. Druckenmiller's criticism is not confined to theory. He believes the buyback is lacking justification in the current contextwhere the 10-year yield is roughly near the nominal economic growth rate, indicating the financial environment is accommodative rather than restrictive. He bluntly stated that this isn't about putting out a market fire, but rather "pulling out the smoke alarm because you don't like its sound." Yellen's response to the buyback operations attempted to downplay the intervention aspect. At an August 24 press conference, she stated that the Treasury "has not yet purchased any Treasuries in the expanded buyback program," and that the next operation would not occur until September 9. She also emphasized that they would "proceed with scheduled bond auctions," implying specific arrangements would only be revealed with the next quarter's refinancing announcement. However, Yellen's reassurances did not quell market concerns. As Druckenmiller criticized, the 30-year Treasury yield again surpassed 5.3% on August 24, indicating that any relief brought by the buybacks was extremely short-lived. Castle Securities referred to the buyback plan as "financial repression," warning that it could weaken the dollar and exacerbate inflation. Druckenmiller's involvement has elevated the debate over "whether the Treasury is overstepping" from the market's fringes to the core discussions on Wall Street. The key question he raisedwhether Washington is using short-term tactics to mask structural fiscal issuesresonates more and more against the backdrop of $40 trillion in debt and a nearly 6% deficit.