Soros Disciple, HYPE Whale Lash Out at Bass: U.S. Bond Yields Flashing Fiscal Warning, Treasury Shouldn’t Muzzle Signal

BlockBeats News, August 25th — Legendary investor Stanley Druckenmiller has targeted the US Treasury Department. On August 25th, Beijing time, he criticized the US Treasury Department in an op-ed in The Wall Street Journal, stating that the recent expansion of long-term Treasury bond repurchases by the US Treasury Department, while appearing to be liquidity management, will actually weaken the bond market's pricing of US fiscal risks.

The background of this event is that the US bond long-term yields have recently remained high, with the 30-year Treasury bond yield reaching its highest level in 19 years. On August 19th, the US Treasury Department announced that it would increase the size of long-term Treasury bond repurchase operations for 10 to 30-year bonds from $20 billion per operation to at least $40 billion, with the operation period covering September 9th to November 4th. The official explanation is to support liquidity in the long-term bond market, but Druckenmiller believes that at that time, the market did not experience auction failures, trading chaos, or forced deleveraging. The Treasury Department's decision to increase repurchases at that time could easily be interpreted by the market as an attempt to lower long-term yields.

In his view, the rise in yields itself is a warning from the bond market about the US fiscal situation. Currently, US inflation remains above target, the unemployment rate is close to full employment, the federal deficit is about 6% of GDP, the government debt has exceeded $40 trillion, and net interest payments are rising rapidly. In this environment, the increase in long-term yields is not surprising; it reflects investors' demand for higher compensation to bear the risks of fiscal deficits, debt expansion, and inflation stickiness.

Druckenmiller's real concern is that if the Treasury Department continues to intervene in long bond yields, it will weaken Washington's pressure to adhere to fiscal discipline. Once the cost of financing is pushed down, the urgency to reduce the deficit, control welfare spending, and adjust the debt path will also decrease. Furthermore, if the Treasury Department buys long-term bonds but finances them by issuing short-term Treasury bills, the market may see it as the Treasury Department's version of "mini quantitative easing."

This is not an abstract debate for the financial markets. Recently, US stocks, especially AI and high-valuation tech stocks, are highly sensitive to long-term rates. An increase in yields will raise discount rates, compressing the valuations of growth stocks; if yields are temporarily held down by policy tools, it may encourage risk assets to continue trading on loose expectations. Druckenmiller's warning is that if the market believes the authorities are maintaining a certain yield level, traders will repeatedly test the policy bottom line, and bond market volatility may ultimately be greater.

His proposition is quite straightforward: let the bond market determine the government's borrowing costs on its own while squarely addressing fiscal issues, including reducing the primary deficit, gradually reforming the welfare system, and managing debt more responsibly. Liquidity tools can buy time but cannot replace fiscal adjustments. For the current market, US Treasury yields have shifted from a macro variable to a core constraint on risky asset pricing. How the Treasury Department handles long-term rates will continue to affect the trading direction of US stocks, gold, the dollar, and crypto assets.

It is worth noting that Stanley Druckenmiller is seen as a "mentor" figure to the current US Secretary of the Treasury. Benson joined Soros Fund Management's London office in 1991, when Druckenmiller was a key trader/manager at the Soros Fund. Both of them later participated in the famous 1992 Black Wednesday trade. Benson himself has also said that Druckenmiller invited him to join Soros Fund, and Stan is his "true business mentor".

Another point to note is that Stanley Druckenmiller's Duquesne family office disclosed in its latest 13F that it has initiated a new position in HYPE Treasury stock of Hyperliquid Strategies Inc. (PURR), holding 2.9415 million shares with a market value of approximately $23.15 million.