Scott Bessent has had to get used to disapproval from his former Wall Street peers during his time in D.C.—but the Treasury Secretary offered some pointed feedback in an interview at the Republican Party midterm convention last night.
Bessent, formerly a partner at Soros Fund Management and the CEO of his own macro hedge fund, Key Square Capital Management, has been criticized for Capitol Hill’s economic policies, including tariffs and, more recently, an intervention to prop up the yen and a series of extra Treasury buybacks intended to bring down the yield on U.S. bonds.
Objections to Bessent’s most recent moves have even come from famed investor Stan Druckenmiller, a friend and mentor of the Treasury Secretary.
But Bessent was sharp in his rebuttal to naysayers. Asked about tariffs and the impact of the policies on America’s working class by former White House strategist Steve Bannon last night, Bessent responded broadly: “If some of the Bloomberg Terminal bros are unhappy with what I’m doing, well, that’s too bad.”
“We have the best-performing bond market in the world, and if you look, bond yields have never been more correlated to the energy price, and that’s my point here. We have a supply shock, and we will get to the other side of this. We’ve had two very strong Treasury auctions, and the U.S.A. is in very good shape; the Treasury market is in very good shape.”
Criticism of Bessent’s recent Treasury buyback scheme stems from the fact that the department is attempting to artificially keep yields low after 10- and 30-year bond yields hit a two-decade high. (Increasing yields indicate that investors are demanding more money for the risk of holding them.) The Treasury benefits if yields are lower, as borrowing costs theoretically come down at a time when the government is running a $2 trillion budget deficit.
In buying back bonds, the Treasury reduced supply and temporarily pulled down yields. But the effect was short-lived. Inflation expectations pushed higher due to supply shocks like the situation in Iran and tariffs, and the yields on the 10- and 30-year bonds are now higher than before Bessent intervened. At the time of writing, 30-year treasuries have hit a 52-week high at 5.35%, while 10-year treasuries are also up to 4.94%.
As Druckenmiller said in his Wall Street Journal op-ed: “The U.S. shouldn’t put itself on the wrong side of that trade, not with the most important price in the world, and not when that price is trying to say the one thing Washington most needs to hear: Let the bond market speak.”
While Druckenmiller said governments defying market fundamentals “always lose,” Bessent doubled down, saying of his Japanese yen intervention: “I am the house.”
Where’s the beef?
Bessent suggested that term premiums for holding longer-dated bonds aren’t significantly elevated compared to shorter-term assets, adding: “That is telling you that investors are not demanding a premium for longer-term U.S. debt, so I’m not sure where the beef is.”
The Treasury Secretary also suggested that the fact his team received a reduced number of offers to buy back longer-dated bonds suggested investors wanted to hold onto them: “It’s a bunch of noise, and in my career I’ve made money ignoring the noise.”
Bond investors seem to be sticking to their own signals. At the time of writing, 30-year treasuries have hit a 52-week high at 5.35%, while 10-year treasuries are also up to 4.94%.
Despite concern this week about the country’s deficits, UBS’s Paul Donovan suggests bond markets are rather more focused on the inflation issue. He wrote in a note to clients this morning: “Bond markets are clearly concerned by the rapid rise in crude oil prices (U.S. gasoline and diesel prices are also shooting higher). The hope that the political cost of higher fuel prices would encourage the U.S. administration to seek reconciliation with Iran seems to have faded from markets. U.S. Treasury Secretary “House” Bessent’s bond buyback plan has had no discernible impact.”