The man behind the curtain — Scott Bessent became the 79th U.S. Secretary of the Treasury in January 2025 and is already a darling on Wall Street. His calm demeanor, level head, and impressive curriculum vitae have helped him emerge as a trusted advisor to President Trump. Bessent’s pedigree includes a Yale degree in political science, followed by employment at Soros Fund Management, where he led the London office during the famed sterling crisis, and then as a hedge fund manager. He also taught economic history at Yale for a period.
Last week was headlined by the Administration’s frustration toward Fed Chair Jerome Powell and his reluctance to lower interest rates in the face of rising pricing pressures from higher tariffs. However, markets largely shrugged off the news—thanks, in part, to Bessent’s stewardship. Just last month, Bessent stated and then reiterated his intent to push the yield on the 10-year Treasury note lower, instead of focusing on the federal funds rate.
Wall Street took the Secretary’s words to heart; some economists even changed their forecasts entirely. This reaction was not only due to Bessent’s ability (like the President) to make speeches, but also to his ability to act. For example, as Treasury Secretary, Bessent could limit the size of upcoming 10-year note auctions, thereby reducing the supply of Treasuries. He is also an advocate for looser bank regulations, which could boost demand for Treasuries.
Both actions would bring more buying in the “belly” of the Treasury curve, pushing yields lower. Indeed, there is already evidence that this is occurring. Bessent, for instance, maintained the level of borrowing through longer-term debt in the coming months—rather than boosting supply, as many had expected, due to increases in the federal government’s overall borrowing. Bessent also supports a review of the Fed’s supplementary leverage ratio, which has been a thorn in the side of banks. (The ratio, which increases the amount of capital that must be held when holding Treasuries, provides a disincentive to hold U.S. government debt.) The focus on the 10-year yield has given rise to the notion of a “Bessent put,” a riff on the famous “Greenspan put,” where central bank intervention was highly correlated to routs in the stock market. The thought now is that if the economy warrants it, or if rates rise to an uncomfortable level, Bessent has the willingness and (some) ability to decrease yields independently of the Federal Reserve.
Meanwhile, the independence of the Fed has been brought into question lately, given remarks from President Trump. Last week, for example, Trump posted that, “Powell’s termination cannot come fast enough!” While that is likely just posturing from the president, Bessent again showed poise by seemingly not giving credence to the thought that Powell could be removed before his term concludes in May 2026: During a Bloomberg interview, Bessent said that the time for considering Powell’s successor was still roughly six months away, a projection that corresponds to Powell finishing his term on schedule. Bessent added that Fed independence in setting monetary policy was a “jewel box that has got to be preserved.”
Notwithstanding Bessent’s reverence for an independent Federal Reserve, the White House said last week it was assessing the possibility of Powell’s removal, prompting lower demand for the dollar and longer-term Treasuries. “At a moment in which the administration has already instilled ever-higher levels of uncertainty into the economic outlook, any attempt to remove Powell will add to the downward pressure on US assets,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets.
Bessent’s influence on trade policy appears to be growing, too. Trump recently added Bessent to the Administration’s tariff negotiation team, including making Bessent the lead on talks with Japan, a key U.S. ally. While Bessent and Commerce Secretary Howard Lutnick will “tag team” on trade negotiations, the news of Bessent’s addition helped calm markets, albeit temporarily.
Bessent’s appointment to tariff talks was made possible because his work helping get a budget through Congress that included extended tax cuts is largely complete, now that both houses have reconciled to a budget framework. Though Bessent still has a substantial list of work to be done as Treasury Secretary, he seems to have the president’s ear.
FROM THE DESK
Agency CMBS — Markets breathed a brief sigh of relief last week, with the VIX, MOVE, and credit spreads all retreating. Both DUS and Ginnie Mae auctions went smoothly, and spreads tightened at the margin. Ginnie perm loans tightened by approximately 6 basis points (bps). Construction loans tightened by 2-3 bps. DUS loans were flat to marginally tighter across the curve.
Municipals — AAA tax-exempt yields were lower throughout the yield curve, week over week. After a volatile market two weeks ago, last week had a steady, calmer tone: We saw minimal movements to the yields. Several housing issues priced last week. Spreads on cash-collateralized deals have widened since March. But spreads on longer-term deals enhanced with Fannie Mae and Freddie Mac MBS and credit facilities have tightened. Municipal bond funds had a sixth straight week of outflows, with $1.30 billion leaving (year-to-date inflows of $5222 billion), while high-yield funds had a third week of outflows with $522 million leaving.
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