Scott Bessent on the bond market

[jsteele]

Someone help me out here. I admit to not being a financial wizard, but I don't think that I am a complete idiot either. What do you think about this statement by Scott Bessent tonight:

"The bond market had its best year since 2020 and if I have anything to say about it as your nation's top bond salesman, bonds will have another strong year in 2026 as we fight to bring treasury borrowing costs down."

https://bsky.app/profile/atrupar.com/post/3m7lmz6ourp2c

If the bond market is strong, wouldn't borrowing costs for the U.S. Treasury go up? If returns on bonds go down, which is what would be required to lower borrowing costs, then wouldn't investors flee from bonds and invest in equities instead? Of course, I am not a soybean farmer like Bessent, so I am probably missing something.

[Anonymous]

Bonds with higher coupon rates become more attractive and their prices rise when rates on new ones fall.

[jsteele]

Anonymous wrote:Bonds with higher coupon rates become more attractive and their prices rise when rates on new ones fall.

Okay, fair enough. But that does not impact borrowing costs. How do you decrease borrowing costs while maintaining a strong bond market? Based on what you are saying, it could strengthen the market for previously-issued bonds but that would lead to even less demand for newly issued bonds.

[Anonymous]

In a falling interest rate environment, borrowers get $ at lower interest rates while holders of older higher interest rate bonds see those bonds rise in value .

[Anonymous]

You get Fed to lower rates.

[Anonymous]

I think he means us fat cats with existing bonds will see them worth more as he gets rates lower for new Treasury issues.

[Anonymous]

jsteele wrote:

Anonymous wrote:Bonds with higher coupon rates become more attractive and their prices rise when rates on new ones fall.

Okay, fair enough. But that does not impact borrowing costs. How do you decrease borrowing costs while maintaining a strong bond market? Based on what you are saying, it could strengthen the market for previously-issued bonds but that would lead to even less demand for newly issued bonds.

Bessant wasn't very clear, but I think he's equating the "bond market" to the US T bill market, and by saying the "bond market is having a good year," that means there's more demand to lend to the US Government so the Treasury is paying lower "borrowing costs" to finance its ginormous budget deficit.

[Anonymous]

The Financial Times analyzed a recent Bessent tweet where he says something similar, and found Bessent's claim to lack validity.

https://www.ft.com/content/f29f8b5a-e79e-47e6-b3ab-b240cec7ee70

"U.S. Treasuries are having their best year since 2020, and the investors who had confidence and faith in President Trump’s economic policies have been richly rewarded"
--Bessent

One obvious point is that the chart strongly implies that Treasuries’ performance back in 2020 was due to Donald Trump’s policies. This is just dumb. Treasuries did well that year because of pandemic flight to safety. But we can set this aside. This year’s Treasury performance — total returns of nearly 10 per cent — is clearly Bessent’s focus.

Bessent’s brag is that, with Trump as president, yields have fallen a bit and been broadly stable, which is a good thing for the country. Should we credit the administration for this outcome? 

The short argument for “no” is that the reason yields were high at the start of the year — setting little Franklin up for a nice return — is that the bond market was nervous about Trump’s fiscal policies and his attitude towards the Fed; and the reason yields have fallen is because Trump hasn’t been as incompetent as feared. This is a somewhat odd thing to take credit for (“We weren’t as crazy as we said we’d be!”) but it is also precisely Bessent’s point (“We proved the doubters wrong!”).

A better argument, for or against, would focus on why bond prices and yields moved. Trump haters will point out that one reason prices rise and yields fall is because growth expectations worsen.

[Anonymous]

The Financial Times published an article called "Bessent's Brag" that made the following point:
https://www.ft.com/content/f29f8b5a-e79e-47e6-b3ab-b240cec7ee70


Please use the sharing tools found via the share button at the top or side of articles. Copying articles to share with others is a breach of FT.com T&Cs and Copyright Policy. Email [e-mail] to buy additional rights. Subscribers may share up to 10 or 20 articles per month using the gift article service. More information can be found at https://www.ft.com/tour.
https://www.ft.com/content/f29f8b5a-e79e-47e6-b3ab-b240cec7ee70

Bessent’s brag is that, with Trump as president, yields have fallen a bit and been broadly stable, which is a good thing for the country. Should we credit the administration for this outcome? 

The short argument for “no” is that the reason yields were high at the start of the year — setting little Franklin up for a nice return — is that the bond market was nervous about Trump’s fiscal policies and his attitude towards the Fed; and the reason yields have fallen is because Trump hasn’t been as incompetent as feared. This is a somewhat odd thing to take credit for (“We weren’t as crazy as we said we’d be!”) but it is also precisely Bessent’s point (“We proved the doubters wrong!”).

A better argument, for or against, would focus on why bond prices and yields moved. Trump haters will point out that one reason prices rise and yields fall is because growth expectations worsen.

[jsteele]

Anonymous wrote:I think he means us fat cats with existing bonds will see them worth more as he gets rates lower for new Treasury issues.

If so, count me among the fat cats because I loaded up on bonds about a year ago.

[Anonymous]

Me three

[Anonymous]

jsteele wrote:

Anonymous wrote:I think he means us fat cats with existing bonds will see them worth more as he gets rates lower for new Treasury issues.

If so, count me among the fat cats because I loaded up on bonds about a year ago.

Yeah this bond fund for example is up 6.7% this year.

https://investor.vanguard.com/investment-products/mutual-funds/profile/vtbnx

This Treasury fund is up 5.5% this year, which is a crazy good return. But of course if eventually the government has to pay higher rates for the new debt it issues, and those rates go above the rates on these older issuances, the older issuances will drop in value because people will move to the new debt with higher rates.

[Anonymous]

Anonymous wrote:

jsteele wrote:

Anonymous wrote:I think he means us fat cats with existing bonds will see them worth more as he gets rates lower for new Treasury issues.

If so, count me among the fat cats because I loaded up on bonds about a year ago.

Yeah this bond fund for example is up 6.7% this year.

https://investor.vanguard.com/investment-products/mutual-funds/profile/vtbnx

This Treasury fund is up 5.5% this year, which is a crazy good return. But of course if eventually the government has to pay higher rates for the new debt it issues, and those rates go above the rates on these older issuances, the older issuances will drop in value because people will move to the new debt with higher rates.

Sorry, link.

https://investor.vanguard.com/investment-products/mutual-funds/profile/vustx