WASHINGTON — As U.S. Treasury yields surge, doubts are mounting over whether Treasury Secretary Scott Bessent can play the role of putting out the fire. Until now, the stock market has held near record highs despite President Donald Trump's erratic moves largely because investors trusted that Bessent was coordinating Trump's various policies on the basis of rational judgment. But that same Bessent has taken the stage at the Republican National Convention — the first sitting Treasury secretary to do so in 50 years — and has been making blunt remarks that provoke markets.
The yield on the 10-year U.S. Treasury note closed at 4.968% on the 11th, up 0.004 percentage point. It topped 5% during the session. A move well above 5% would mark the highest level since 2007. Markets view the 5% line on the 10-year yield as more than a number — it is a reference point for repricing funding conditions for households, governments and companies, as well as asset prices across the board.
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Market confidence in Bessent had been strong. A senior South Korean government official described him as "a bond guy," adding that "he is patient and has real depth." Bessent spent his career as a hedge fund trader in bonds. Given that bond markets move more heavily than equities, the assessment was that no one should underestimate him based on his somewhat halting speaking style. Some in the market went so far as to say that "if Bessent were to resign as Treasury secretary, that would be the single strongest sell signal for U.S. stocks."
Recently, however, unease has grown. A telling example is the measure he unveiled in response to the surge in Treasury yields. An unwritten rule among policymakers is that when markets are in turmoil, governments must announce packages large enough to overwhelm market expectations. The strategy holds that a forceful response is needed from the outset, because a failed initial response invites markets to keep testing the government. The South Korean government did just that in 2020, when markets reeled from COVID-19 and it announced more than 100 trillion won in market stabilization funds, quelling anxiety at a stroke.
Bessent, by contrast, announced a long-dated Treasury buyback of $6 billion, below market expectations of $8 billion to $10 billion, and even then actual purchases came to only about $5.2 billion. Mark Cabana, head of U.S. rates strategy at Bank of America, told the Financial Times that Bessent appeared to be trying to achieve an effect while pinching pennies, and that the approach was far from a whatever-it-takes stance aimed at stabilizing the market.
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Bessent's political turn is also drawing wary looks. He recently took the podium at the Republican National Convention in Dallas, Texas, the first sitting Treasury secretary in 50 years to do so. CNBC reported it was the first such appearance since William Simon, then Treasury secretary, in 1976.
Bessent argued that "the American economy in President Trump's second term is succeeding across the board," and that "everything from gross domestic product to factory hiring is picking up." He also said that "no president has fought harder for you than President Trump, or demanded that his advisers put American families at the center of the economy," and that "the Democrats drove this country to the brink of ruin." Critics say that if Bessent — who as Treasury secretary must manage confidence in the economy and financial markets — is seen putting political loyalty to Trump front and center, it could weigh on market trust.
His needlessly provocative language is another problem. At an event held at a Texas university on the 8th, Bessent said of the yen-dollar exchange rate, "Right now I'm the House. Bet against me if you want." Even Japanese Finance Minister Satsuki Katayama, from Washington's closest ally, told reporters that the "House" remark sounded rather frightening when considered in Japanese nuance, and said she understood it as reflecting Bessent's past career at a hedge fund. As the controversy grew, Bessent explained, "I'm not saying I'm always right and no one should challenge me. I mean that I had better information and was trying to point in the right direction so markets would not panic."
Even afterward, in an interview with Steve Bannon, chief strategist at the White House during Trump's first term, Bessent sent another provocative message to markets, saying, "If the Bloomberg Terminal bros are unhappy with what I'm doing, that's too bad."
Stephen Myrow, a former adviser to Treasury Secretary Hank Paulson, told CNBC that the Treasury secretary does not in fact hold sweeping power once market credibility is stripped away, and that unlike the Federal Reserve, the department has no authority to print dollars. He added that the reason Bessent is genuinely valuable to Trump is his credibility with markets, and that if he loses that trust, he is squandering his own worth.
