After months of verbal commitments to remain in the system, the UK government exited the European Exchange Rate Mechanism on September 16 1992, unchaining sterling from other EU currencies. “Black Wednesday” harmed the credibility of the government, and netted investors who bet against the pound large returns. Among them was a young American trader at Soros Fund Management in London: Scott Bessent.
Today, the US Treasury secretary finds himself on the other side of the table. Rather than maintaining a currency peg, Bessent must bolster the world’s most important bond market as Treasuries face a moment of weakness.
Bessent likes to describe his role as America’s “top bond salesman.” Implicit is a desire to keep bond prices high and rates low. But his recent attempts to tame Treasuries have not addressed the underlying drivers of turbulence in the US bond market. As Bessent surely knows from his experience with John Major’s government, interventions only work insofar as policymakers have credibility in the eyes of markets.