U.S. Treasuries rally on bets Bessent will soften Trump plans

(Bloomberg) — U.S. Treasuries added to gains spurred by Friday night's announcement from Scott Bessent, a Wall Street veteran who investors say will tone down the government's more aggressive trade and economic policy proposals as the President-elect Donald Trump. Choice of the Secretary of the Treasury.

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Monday's rally cut yields by more than 10 basis points across the U.S. curve, gaining momentum in New York trading amid a decline in oil. The dollar fell the most in more than two weeks before paring the loss.

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

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Bessent, who runs hedge fund Key Square Group, called for a phased approach to implementing trade restrictions and was open to negotiating the exact amount of tariffs championed by the president-elect. In an interview with the Wall Street Journal, Bessent said his priority would be to deliver on Trump's various tax cut promises, while cutting spending and maintaining the dollar's status as the world's reserve currency.

The dollar recorded its longest run of weekly gains in more than a year on Friday, as the prospect of an all-out global trade war weighed on currencies around the world. Trump has threatened to impose 60% tariffs on Chinese shipments and impose 10% tariffs on goods from all other countries.

Bessent is seen as a potentially moderating influence on the new government's policies, said Shaun Osborne, chief foreign exchange strategist at Scotiabank. Promote progressiveism on prices, for example.

Bessent's nomination, which must be confirmed by the U.S. Senate before he accepts office, is at odds with Trump's choice of a series of unorthodox candidates and outright loyalists for other key posts. Other high-profile 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 political instincts are appealing. What's not to like about deficit reduction, deregulation and higher growth? but if they can leave a mark on the hurricane that is Donald Trump.

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Cameron Crise, Bloomberg Markets live macro strategist. Learn more here.

While Bessent said Treasury Secretary Janet Yellen had overused Treasuries to finance the government, Citigroup strategist Jason Williams pointed out that it was likely the share of Treasuries would remain around 22%.

This is a positive development that is reflected in bond price movements today, said Subadra Rajappa, head of US rates strategy at Société Générale.

Early moves in bond and currency markets on Monday were exacerbated by falling oil following signs that Israel is potentially days away from a ceasefire deal with Lebanon's Hezbollah.

Yields on 10-year Treasury notes fell 14 basis points to 4.2595%, the lowest since November 8. Two-year yields fell 11 basis points to 4.2621% after an auction of $69 billion of notes. solid demand.

This made 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-term yields due to expectations of interest rate hikes from the Federal Reserve, Monday's decision occurred during a rally in which long-term yields fell the most.

The Bloomberg Dollar Spot Index slipped as much as 0.7% before paring some of the decline. The gains in U.S. currencies over the past eight weeks are unlikely to be completely erased. Speculative traders increased 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 measure of one-month risk reversals on the Bloomberg Dollar Spot Index has pulled back from its short-term high in October, but suggests bullish sentiment remains strong.

Bessent's selection for Treasury secretary triggered some decline in the dollar, but we view that as a temporary setback from a very rapid move, rather than a change in direction, said Skylar Montgomery Koning, currency strategist at Barclays Plc in New York. Tariffs are coming and supporting the dollar.

At the same time, bond traders have lowered their expectations for Fed easing in 2025, fearing accelerating inflation in a robust U.S. economy. The swaps price in about 73 basis points of rate cuts by the end of next year.

Chicago Fed President Austan Goolsbee said he expects the central bank to continue lowering rates toward a stance that neither restricts nor promotes economic activity.

–With help from Ye Xie, Greg Ritchie, Matthew Thomas, Alexandra Harris and Edward Bolingbroke.

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

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