Trump wants lower yields on 10-year bonds. Can he make that happen?
Trump wants lower yields on 10-year bonds. Can he make that happen?
Treasury Secretary Scott Bessent told reporters that the administration isn’t focused on the Federal Reserve, but just on bringing bond yields down — specifically 10-year yields. Never mind that his boss has been attacking the Fed on social media regularly, criticizing it for not cutting interest rates recently.
It makes sense that the president would want 10-year yields to come down. Plenty of people would love that. “A lot of consumers feel what happens in 10-year rates,” said Brian Rehling, head of global fixed-income strategy at Wells Fargo Investment Institute.
The rate of return on the U.S. government’s 10-year bonds influences interest rates all over the economy — credit cards, car loans, mortgages.
“So if the 10-year yield goes lower, then mortgage rates are going to go lower, so people are going to be able to better afford homes,” said Rehling.
How might one bring down the yield on 10-year bonds?
“With the president’s policies of energy dominance, deregulation and non-inflationary growth, I think that the 10-year is going to naturally come down,” Treasury chief Bessent told Bloomberg on Thursday.
When Bessent says “energy dominance,” he is referring to the administration’s desire for the U.S. to produce more oil, bring down energy prices and lower inflation. Inflation can drive up Treasury yields, so reducing inflation can lead to reduced yields.
“We wouldn’t see that for quite a number of years,” said Ken Kuttner, professor of economics at Williams College. “You can reduce the oil price. That will give you a transitory pressure down on the inflation rate. But once it stabilizes, then inflation is back where it started.”
So, “Drill, baby, drill” might not actually bring yields down. There’s another way that could work. “Yeah, if you can shrink the deficit or the amount we have to borrow,” said Brian Rehling.
If the government isn’t as desperate to borrow money, it won’t have to offer as high a return on bonds to get people to lend to it.
“Then yes, you’re likely going to see the 10-year yield fall lower because we don’t have to issue as many 10-year bonds to fund the debt and the deficit,” said Rehling.
Bessent has said cutting government spending could do that. But shrinking the deficit would be a heavy lift for an administration planning tax cuts that could cost the U.S. Treasury several trillion dollars — despite the assistance of the Elon Musk-led Department of Government Efficiency.
“I’m skeptical that cost cuts will be large enough to make a material difference in the size of the budget deficit,” said Guy Lebas, chief fixed-income strategist with Janney Montgomery Scott.
Lebas said the administration has good intentions with a dose of wishful thinking.
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