Bessent’s remarks: “After hearing your words, it’s like listening to a lesson”? The pressure on the bond market is all pushed onto Wosch
Tonight, Bessent’s speech has ended, and the major guidance the market had been expecting did not materialize. A full read-through suggests that his remarks have very limited constraints on the bond market—only presenting the weakest possible scenario: emphasizing the resilience of the U.S. economy, and in the meantime shifting the blame for bond market issues to the Middle East.
None of the market’s true focus—the fiscal consolidation plan, increasing the share of buybacks, and reducing long-term bond issuance—provided any clear implementation guidance. Judging by the market reaction, this speech was essentially ineffective in intervening in the bond market.
Why might the policy fail? On the one hand, a short-term rebound in energy prices boosts inflation, putting pressure on the long-end yields and offsetting the bond-market impact; on the other hand, rate hikes have not yet been implemented and the outlook remains unclear, so the bond market has not yet been able to price them with certainty.
Now, the ball has been kicked to Wosch. Tomorrow’s dot plot and Wosch’s explanation of the rate-hike path are crucial. With bond yields currently elevated, both the Fed and Bessent have extremely limited room for action.
That said, even in a crisis there may be openings. The bond-market crisis might force Trump to compromise on the Iran issue, thereby easing energy prices. After all, a fall in energy prices may be the only correct solution for the bond market in the near term
Tonight, Bessent’s speech has ended, and the major guidance the market had been expecting did not materialize. A full read-through suggests that his remarks have very limited constraints on the bond market—only presenting the weakest possible scenario: emphasizing the resilience of the U.S. economy, and in the meantime shifting the blame for bond market issues to the Middle East.
None of the market’s true focus—the fiscal consolidation plan, increasing the share of buybacks, and reducing long-term bond issuance—provided any clear implementation guidance. Judging by the market reaction, this speech was essentially ineffective in intervening in the bond market.
Why might the policy fail? On the one hand, a short-term rebound in energy prices boosts inflation, putting pressure on the long-end yields and offsetting the bond-market impact; on the other hand, rate hikes have not yet been implemented and the outlook remains unclear, so the bond market has not yet been able to price them with certainty.
Now, the ball has been kicked to Wosch. Tomorrow’s dot plot and Wosch’s explanation of the rate-hike path are crucial. With bond yields currently elevated, both the Fed and Bessent have extremely limited room for action.
That said, even in a crisis there may be openings. The bond-market crisis might force Trump to compromise on the Iran issue, thereby easing energy prices. After all, a fall in energy prices may be the only correct solution for the bond market in the near term