It's no secret, the Trump administration wants lower rates.
“In my talks with [the president], he and I are focused on the 10-year Treasury [yield],” Treasury Secretary Scott Bessent said in February.
But that's been an understatement, according to a recent Bloomberg tally, which characterizes him as being unable to stop talking about the Treasury Note yield. He mentioned it five times in an appearance at The Economic Club of New York and talked about it on CNBC’s Squawk Box early in March.
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Bessent and President Donald Trump's persistence have led to Barclays, Royal Bank of Canada, and Societe Generale cutting their forecasts for 10-year yields partly because of the drumbeat and the potential for action.
There are two major reasons for trying to control 10-year yields. One would be for the hope that it would lead to economic growth, with businesses and individuals more easily able to borrow and spend more. The other would be debt service cost reductions for the federal government.
Bessent and the administration can take at least three steps to try to create conditions that would put downward pressure on 10-year yields. The first is to shift Treasury strategies in debt auctions to favor more short-term instruments and fewer longer-term ones.
During the Biden administration, Janet Yellen began shifting to more short-term Treasurys to take pressure off the 10-year—the very strategy that Bessent has been employing. At its foundation, this approach uses the inverse relationship between bond prices and yields. The higher that bond prices are, the lower the yields. When prices drop, yields rise.
If the number of 10-year auctions is limited, the government will reduce the supply of those Treasury Notes, which should mean higher prices and lower yields.
The second step is to change banking rules to reduce the Supplementary Leverage Ratio (SLR), a byproduct of the 2014 Basel III reforms, to improve bank stability by increasing capital on hand. The theory is that banks would buy more 10-year Treasurys, increasing demand and, again, causing the price to rise and the yield to fall.
The third approach is to push Elon Musk’s DOGE campaign to drastically cut government spending, which would lower what needs to be financed by borrowing, reducing volume, increasing prices, and lowering yields.
“What used to be often mentioned in the bond market is the idea of don’t fight the Fed,” Guneet Dhingra, head of US interest rates strategy at BNP Paribas SA, told Bloomberg. “It’s somewhat evolving into don’t fight the Treasury.”
Will all this work? It isn’t clear. Yields on the 10-year have come down since Trump’s inauguration, from nearly 4.80% to a low of about 4.25% last week. But there was a jump on Monday to 4.34%.
As Bloomberg noted, the shifts in bond prices are due to concern about Trump’s trade policies and a potential recession.
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