U.S. Treasury Secretary Scott Bessent’s Comments on 10-Year Yields
Reduction of Borrowing Costs to Boost Economy
U.S. Treasury Secretary Scott Bessent recently stated that the Trump administration aims to reduce borrowing costs in the economy by lowering the yield on the 10-year Treasury note. In an interview with Fox Business, Bessent emphasized that the administration is focused on the 10-year Treasury yield, rather than pushing the Federal Reserve to lower interest rates.
Influence of 10-Year Yield on Long-Term Loans
The 10-year yield, also known as the risk-free rate, has a significant impact on long-term loans in the economy, including mortgages and business loans. A decline in the 10-year yield encourages borrowing and investment, leading to increased risk-taking in the economy and financial markets.
Trump’s Plan to Lower 10-Year Yield
To achieve this goal, Trump plans to lower the 10-year yield by controlling inflation, which will likely benefit Bitcoin (BTC) and reduce the budget deficit, a potential headwind for risk assets. Bessent highlighted the importance of boosting the energy supply to lower inflation, stating, "The energy component for them is one of the surest indicators for long-term inflation expectations."
Fed’s Monetary Policy
The Federal Reserve (Fed) has been keeping interest rates relatively high, with the benchmark borrowing cost ranging from 4.25% to 4.5%. This restrictive monetary policy has been in place since September. Lowering interest rates could further boost risk assets, including cryptocurrencies.
Budget Deficit Reduction
Bessent also emphasized the need to reduce the budget deficit, which would lead to lower bond supply, higher bond prices, and lower yields. Reducing the deficit would require significant spending cuts, which could be challenging, as noted by ForexLive’s Chief Asia-Pacific Currency Analyst Eamonn Sheridan: "Of course, getting the 10-year yield on a downward path implies moves to improve the U.S. fiscal position, as well as inflation. So far, we’ve had his partner, Musk, cutting Federal government programs like USAID, Federal employees, and such. Which really doesn’t scratch the surface. Most of the U.S. spending is on healthcare, Social Security, and defense. Will Trump inflict the pain that his focus seems to imply? There is barely a politician out there that would."
ING’s Perspective
ING analysts do not see a sustained drop in the 10-year yield, stating, "We also assert there is not huge room to the downside for the 10-year yield. An effective floor is in place at just under 4%, as determinable from the funds rate strip. That floor can, of course, shift lower, but would need a better reason than an approaching 10-year rate. And the 10-year Treasury yield sits some 50bp over this. So, enjoy the move lower while it lasts."
Conclusion
In conclusion, the Trump administration’s plan to reduce borrowing costs by lowering the 10-year Treasury yield is a key aspect of its economic strategy. This move is expected to boost the economy, reduce the budget deficit, and potentially benefit risk assets, including Bitcoin. However, the success of this plan depends on the ability to control inflation and reduce the budget deficit, which may be challenging.
FAQs
Q: What is the 10-year Treasury yield?
A: The 10-year Treasury yield, also known as the risk-free rate, is the interest rate on the 10-year U.S. Treasury note.
Q: Why is the 10-year yield important?
A: The 10-year yield has a significant impact on long-term loans in the economy, including mortgages and business loans. A decline in the 10-year yield encourages borrowing and investment, leading to increased risk-taking in the economy and financial markets.
Q: How will the Trump administration reduce the 10-year yield?
A: The Trump administration plans to reduce the 10-year yield by controlling inflation, which will likely benefit Bitcoin (BTC) and reduce the budget deficit, a potential headwind for risk assets.
Q: What is the current interest rate range set by the Federal Reserve?
A: The Federal Reserve has set the benchmark borrowing cost at a range of 4.25% to 4.5%.
Q: How will reducing the budget deficit affect the 10-year yield?
A: Reducing the budget deficit would lead to lower bond supply, higher bond prices, and lower yields.
