(Bloomberg) – The US Treasury added to the gains caused by the late-Friday announcement of Scott Bessent – a veteran Wall Street investor who hopes that he will remove poverty from aggressive trade and economic policies – as President-elect. Donald Trump’s choice for Treasury Secretary.
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Monday’s rally improved yields by more than 10 basis points over the five- to 30-year period, increasing in early New York trading amid a drop in oil prices. The dollar has depreciated the most in two weeks.
“Bessent is seen as likely to control the policies of the incoming administration,” said Shaun Osborne, head of foreign exchange at Scotiabank. “A preference for gradualism on taxes, for example.”
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Bessent, who runs the macro hedge fund Key Square Group, has called for a more gradual approach to implementing trade restrictions and has publicly indicated that he will negotiate the exact size of the tariffs supported by the president-elect. In an interview with the Wall Street Journal, Bessent said his top priority is to implement Trump’s various promises to cut taxes, while also reducing spending and “maintaining the status of the dollar as the world’s reserve currency.”
The dollar had seen its weekly advance for more than a year on Friday as anticipation of a global trade war weighed on currencies around the world. Trump has threatened to hit Chinese imports with a 60% tariff and impose a 10% tariff on imports from all other countries.
Bessent’s nomination, which needs to be confirmed by the US Senate before he can take office, contradicts Mr Trump’s selection of non-genuine and completely untrustworthy candidates for key positions. Other notable contenders included former Federal Reserve board member Kevin Warsh and Trump transition co-chairman Howard Lutnick, who had the support of Elon Musk.
“The fact of Bessent’s selection does not fully exclude the potential fallout from the development of trade wars and prices, even after removing some extreme conditions, the market found comfort in the outlook for the bond market,” wrote Ian Lyngen, head of US rates strategy at BMO Capital Markets.
While Bessent said that Treasury Secretary Janet Yellen used more Treasury bills to fund the government, Citigroup Strategist Jason Williams said that the debt ratio will likely remain at 22%.
“This positive trend is reflected in the price action in bonds today,” said Subadra Rajappa, head of US rates strategy at Societe Generale.
Monday’s early moves in bond and currency markets increased as oil fell on signs of easing risks from the Middle East. Israel is days away from a ceasefire agreement with Lebanon’s Hezbollah, Israel’s ambassador to the US said.
Yields on 10-year Treasuries fell as much as 12 basis points to 4.28%, the lowest since Nov. 8, while the two-year yield was down to eight points to 4.29%.
The Bloomberg Dollar Spot Index slipped to 0.7%. However, the gains of the US currency in the last eight weeks cannot be completely erased. Speculative traders increased their bets on dollar gains in the week ending Nov. 19 to the highest level since the end of June, according to data from the Commodity Futures Trading Commission.
The one-month risk-adjusted index on the Bloomberg Dollar Spot Index has retreated from near-term highs in October but suggests improving sentiment remains strong.
Meanwhile, bond investors have scaled back expectations for Fed easing in 2025 amid fears that inflation could accelerate in the strong US economy. Swaps are pricing in a 73 basis point rate cut by the end of next year.
“Current trends could trigger a short-term correction in the US dollar if US yields decline,” said Felix Ryan, an analyst at ANZ Banking Group in Sydney. “But in the end we still see key forces – strong growth in the US, compared to the deficit in the EU and global growth as shown by Friday’s PMI data – still supporting the case for a supported US dollar.”
–With assistance from Greg Ritchie, Matthew Thomas and Alexandra Harris.
(Updates with market prices, drivers and comments inside.)
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