Treasury Secretary Scott Bessent declared in an interview with Fox Business a surprising target. Bessent and the Trump Administration were mainly focused on lowering the 10-year Treasury yield and Trump is not calling the Fed to lower short-term rates. He also reiterated the Trump Administration’s objective of raising energy output and the extension of the TCJA tax cuts.
Here is the short-term report card. Since the Fed announced its jumbo half-point rate cut in September, the 2-year Treasury yield, which is a proxy of the market’s expectations for the terminal Fed Funds rate, has risen, and so has the 10-year yield. The 2s/10s yield curve steepened, indicating stronger growth expectations.
Since the election, the 2-year yield is roughly flat and the 10-year yield is up marginally. The bond market has shrugged off anxiety over the possible effects of a trade war, when President Trump announced a 25% tariff on Canada and Mexico, which was later walked back, and a 10% tariff on China. More importantly, the U.S. eliminated a de minimis tariff exception on the import of Chinese goods below $800. An entire industry had grown up to exploit this loophole by sending small individual packages to exploit this rule.
So far, so good. The bottom panel of the chart summarizes Scott Bessent’s main challenge in controlling the 10-year yield. The MOVE Index, which is the VIX of the bond market, had fallen since the election and readings are relatively low by historical standards. Bessent’s main task is to calm the bond market and keep anxiety levels low.
The full post can be found here.
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