Morgan Stanley Investment Management's Vishal Khanduja, a top-performing fixed-income investor, is reducing his bearish bets on long-dated US Treasuries, citing Treasury Secretary Scott Bessent's readiness to do "whatever it takes" to halt the rise in yields. Khanduja, who leads the firm's broad market fixed income team, said he has trimmed exposure to curve-steepening trades, which wager on a widening spread between 30-year and 5-year Treasury yields, as he believes the potential for further gains in this strategy has diminished.

"It's hard to hold a large curve steepener in the portfolio right now because there's a buyer at the long end who isn't there for economic return," he said in an interview. That buyer is the US Treasury itself, which last week announced plans to at least double its purchases of existing 10- to 30-year notes to prevent a further surge in borrowing costs. Since the announcement, the gap between 5-year and 30-year yields has narrowed by roughly 10 basis points.

"Bessent has essentially shown his cards," Khanduja remarked, likening the move to a "whatever it takes" moment, a phrase borrowed from former European Central Bank President Mario Draghi's 2012 pledge to defend the euro, which ultimately helped calm the European debt crisis. Khanduja co-manages the $4.4 billion Eaton Vance Total Return Bond Fund with Brian Ellis. The fund has delivered an annualized return of 3.2% over the past decade, roughly double the gain of the Bloomberg US Aggregate Bond Index during the same period, and has outperformed about 97% of its peers over that timeframe, according to Morningstar data. As of Monday, the fund is up roughly 0.3% year-to-date, compared with a 0.2% decline for the benchmark index.

Bessent's unexpected plan, announced just two weeks after the Treasury's previous buyback schedule, supports longer-dated debt by reducing the market supply of long-term securities. Barclays strategists estimate that the expanded buyback program could add up to $64 billion in annual purchases, representing roughly 15% of the current annual issuance of 20- and 30-year Treasuries. Khanduja calls the initiative "quasi-quantitative easing," noting that since the Treasury is absorbing some duration risk from the market, the intervention could also bolster risk assets. As a result, he has increased holdings of investment-grade corporate bonds while reducing exposure to relatively lower-risk mortgage-backed securities, and is betting on a weaker US dollar against higher-yielding emerging market currencies.