US Treasuries Rally on Bets Bessent Will Soften Trump’s Plans

Carter Johnson, Matthew Burgess and Michael G. Wilson
·4-min read

(Bloomberg) -- US Treasuries have added to the gains spurred by the late-Friday announcement of Scott Bessent — a Wall Street veteran who investors expect will take the sting out of the administration’s more aggressive trade and economic policy proposals — as President-elect Donald Trump’s Treasury secretary choice.

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Monday’s rally trimmed yields by more than 10 basis points across the US curve, gaining momentum in New York trading amid a drop in oil. The dollar slumped by the most in more than two weeks before paring the loss.

“The market was so worried about someone a little more extreme,” Greg Peters, co-chief investment officer at PGIM Fixed Income, said. “This is a nominee who is capable and qualified and considered ‘the adult in the room.’ The market quite likes it.”

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Bessent, who runs macro hedge fund Key Square Group, has called for a gradual approach to implementing trade restrictions and has appeared open to negotiating the exact size of tariffs championed by the president-elect. In an interview with the Wall Street Journal, Bessent said his priority will be to deliver on Trump’s various tax cut pledges, while also cutting spending and “maintaining the status of the dollar as the world’s reserve currency.”

The dollar had notched its longest stretch of weekly advances in more than a year on Friday as the prospect of an all-out global trade war weighed on currencies across the world. Trump has threatened to hit Chinese shipments with a 60% tariff and impose a 10% levy tariff on goods from all other countries.

“Bessent is viewed as a potentially moderating influence on the incoming administration’s policies,” said Shaun Osborne, chief foreign-exchange strategist at Scotiabank. “Favoring gradualism on tariffs, for example.”

Bessent’s nomination, which needs to be confirmed by the US Senate before he takes the job, is at odds with Trump’s choices of a series of unorthodox candidates and absolute loyalists for other key positions. Other prominent contenders included former Federal Reserve board member Kevin Warsh and Trump transition co-chair Howard Lutnick, who had the support of Elon Musk.

What Bloomberg strategists say...

“The question around Bessent is not whether his policy instincts are attractive — what’s not to like about a lower deficit, deregulation, and higher growth? — but whether they can make a mark on the hurricane that is Donald Trump.”

— Cameron Crise, Bloomberg Markets Live Macro Strategist. Read more here.

While Bessent has said Treasury Secretary Janet Yellen over-utilized Treasury bills to fund the government, Citigroup strategist Jason Williams pointed out that it’s likely the share of bills will remain around 22%

“This is a positive development reflected in the price action in bonds today,” said Subadra Rajappa, head of US rates strategy at Societe Generale.

Monday’s early moves in bond and currency markets were exacerbated as oil dropped on signs that Israel is potentially days away from a cease-fire agreement with Lebanon’s Hezbollah.

Yields on 10-year Treasuries fell as much as 14 basis points to 4.2595%, the lowest since Nov. 8. Two-year yields were down as much as 11 basis points to 4.2621% after a $69 billion auction of the notes was met with solid demand.

That pushed the key segment of the yield curve slightly negative. While so-called curve inversions are often a function of two-year yields rising more than longer-dated ones on expectations of Federal Reserve interest-rate increases, Monday’s move occurred during a rally in which longer-dated yields declined the most.

The Bloomberg Dollar Spot Index slid as much as 0.7% before trimming some of the decline. The US currency’s gain over the past eight weeks is unlikely to be erased fully. Speculative traders boosted their bets on dollar gains in the week ending Nov. 19 to the most bullish level since late June, according to data from the Commodity Futures Trading Commission.

A gauge of one-month risk reversals on the Bloomberg Dollar Spot Index has pulled back from a near-term high in October but suggests bullish sentiment remains strong.

“Bessent being selected for Treasury secretary has triggered some dollar downside, but we see it as a temporary pullback from a very fast move, rather than a change of direction,” said Skylar Montgomery Koning, a currency strategist at Barclays Plc in New York. “Tariffs are coming and are dollar supportive.”

Meanwhile, bond traders have dialed back expectations for Fed easing in 2025 amid fears inflation could accelerate in a robust US economy. Swaps are pricing in roughly 73 basis points of rate cuts by the end of next year.

Chicago Fed President Austan Goolsbee said he foresees the central bank continuing to lower rates toward a stance that neither restricts nor promotes economic activity.

--With assistance from Ye Xie, Greg Ritchie, Matthew Thomas, Alexandra Harris and Edward Bolingbroke.

(Updates with market pricing, adds auction results in 11th paragraph.)

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