Investors celebrate Trump’s pick for Treasury chief with lower bond yields

The markets have been rallying recently — including the bond market. The yield on the 10-year Treasury bond was down by 12 basis points at market close Monday, falling to 4.28%. That’s the lowest it’s been since early November, just after the election.

Keep in mind, interest rates on longer-term Treasury bonds (also 30-year mortgage rates) are heavily influenced by inflation and what investors think the Federal Reserve is going to do about it.

Leading up to the Fed’s first big rate cut in September, bond yields fell significantly. But as it looked more like a Donald Trump election victory was in the cards, yields rose again — on the expectation that Trump’s economic policies would juice economic growth.

Now, a new force is pushing Treasury yields down again: the announcement on Friday of President-elect Trump’s nominee for treasury secretary: hedge-fund billionaire Scott Bessent. Why is that cheering the markets and sending interest rates lower?

Up until Bessent was chosen for the post, investors were focused intensely on inflation and whether it might surge higher again, in part because of the incoming Trump administration’s likely policies, said Thomas Urano, co-chief investment officer at Sage Advisory.

“Tax cuts, tariffs, immigration: The market generally perceiving the Trump administration to embark on policy that might add to inflationary pressures, add to growth, but also add to the deficit. It brings into question whether the Fed is going to continue cutting rates,” he said.

There’s a bit less worry now that investors expect Bessent to hold the most important economic position in the new administration, Urano said.

“It’s just a little bit of a relief rally. He’s viewed more as a moderating force on some of the tax, tariffs and deficit concerns,” he said.

In particular, Bessent is seen as ready to advocate for a balance between Trump’s stimulative wish list and fiscal reality, said Jennifer Lee, senior economist at BMO Capital Markets.

“He said his first priority is delivering on all the tax cuts the president-elect has promised, instead of tariffs. The fact that he also wants to cut spending is also encouraging, as opposed to spending like there’s no tomorrow,” she said.

Bessent is on the record favoring gradual implementation of tariffs, which could reassure companies and consumers who are worried about higher import prices hitting right away. 

For investors, some of the relief comes simply from the fact that Bessent is a seasoned Wall Street hand at a time when the federal deficit is high and likely going higher, said Quincy Krosby, LPL Financial’s chief global strategist.

“The need to raise money to pay for that deficit via auctions, for example — you need to have someone highly experienced. That’s something the market was in essence demanding,” she said.

But the Bessent rally may not last, Krosby said. We get more inflation data this week, and if the numbers are high, Treasury yields could shoot up again.