Good morning, investors. Scott Bessent continues to dominate headlines, move markets and blur the line between geopolitics and debt financing.

Let’s dive in.

The next phase of the US-Iran conflict will be fought through the banking system. 

In a much anticipated Monday press conference, Treasury Secretary Scott Bessent announced Operation Economic Outcast, a sanctions campaign built to isolate Tehran from the US dollar and squeeze its finances to prevent new military action — all without pushing oil prices higher. 

Bessent said the goal is "to sever every economic lifeline that sustains this tyrannical regime until Tehran stands alone," and that any entity laundering money for Iran "will be removed from the US dollar system."

Among the details: 

Bessent said the Treasury’s regular debt auctions will continue as planned and the expanded buyback program announced last week won’t begin until September 9.

He announced no new measures on the bond market. 

Notably, US Treasury yields bottomed this year the day before the Iran conflict began, which helps explain why geopolitics and the bond market have become so intertwined under Bessent.

Last week, the 30-year yield touched 5.31% for the first time since 2007.

The official purpose of the bond market intervention, according to Bessent, is “liquidity support.”

He does not believe that yields currently reflect the underlying fundamental.

But Stanley Druckenmiller, a Wall Street legend not unlike Bessent, took the other side of that view in a new Wall Street Journal op-ed.

“Markets aggregate information no committee possesses, and prices are how that information reaches decision makers,” Druckenmiller wrote, adding that the long-term Treasury yield is the only fiscal disciplinarian left in the US.

"Every basis point of artificial yield suppression is a subsidy to procrastination,” he continued.

"Return buybacks to their stated purpose: small, scheduled, off-the-run liquidity operations announced at quarterly refundings, never off-cycle responses to yield levels. Term out the debt honestly and pay the price the market sets."

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🗓 August 25, 1987: The Dow Jones Industrial Average closed at 2,722.42, its all-time high at the time and the peak of a five-year bull run. The market would not reclaim that level for nearly two years.

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