Bessent Is Treating Treasury Like a Hedge Fund | Company Business News

(Bloomberg Opinion) — Two things can be true at the same time: First, Treasury Secretary Scott Bessent is generally right to avoid terming out the US government’s debt at the high prevailing borrowing costs. Second, he is being hypocritical given that he criticized his predecessor for leaning into short-dated bill issuance.

Here’s Bessent’s exchange on Monday with Bloomberg’s Sonali Basak:

Basak: At what point do you start issuing at longer-dated maturities?

Bessent: Well, why would we do it at these rates? We are more than 1 standard deviation above the long-term… rate, so why would we do that? The time to have done that would have been in ’20, ’21, ’22.

As a matter of tactics, I increasingly agree with Secretary Bessent, who no doubt has plenty of experience timing the market from his years as a hedge fund manager. The Federal Reserve’s policy range of 4.25%-4.5% is well above most estimates of the longer-run neutral rate, which 11 of 19 Fed policymakers peg at 3% or below. Bond bulls have reason to expect that the entire yield curve will shift lower by some point in 2026. Even if some of the dovish thesis is already priced in, it would be odd to lock in rates at current levels. What’s more, Bessent understands that he would exert further upward pressure on longer-run yields if he signaled an increase in issuance now, with implications for borrowing costs across the economy.

Of course, any forecast for lower rates is predicated on the more fundamental belief that inflation will continue to moderate. While tariffs are likely to provide a one-time bump to certain categories of imported goods, the effect has been relatively innocuous thus far, and the services economy has provided a disinflationary offset. Even if broader producer price increases appear over the summer, retailers will have to weigh consumer price increases against sour sentiment, and many may opt to hold off. In the end, the key question isn’t whether prices go up a bit on a one-off basis, as remains very plausible, but whether the shock is large enough to affect self-fulfilling inflation expectations and create an enduring new problem. Meanwhile, signs of weakness in the labor market may well incentivize the Fed to cut rates relatively soon to protect the maximum employment part of its mandate.

All of that can be true, but Bessent is still openly flouting the standards of Treasury market issuance. When Janet Yellen was leading Treasury, Bessent criticized her for precisely the policy that he’s now pursuing. Bessent claimed that Yellen was being fiscally imprudent by pushing up sales of short-dated bills. While bills have lower interest costs than notes and bonds (in normal yield curves), they mature sooner and open up the government to volatility over the short- and medium-run. Future Council of Economic Advisers Chair Stephen Miran even accused Yellen of pursuing “activist” issuance policy that effectively undermined the inflation-fighting goals of the central bank. These poorly supported accusations rested on the notion that Yellen was somehow breaking with Treasury’s normal operating procedure, which Yellen and her deputies vigorously denied.

Bessent is now openly bucking the time-honored Treasury principle of “regular and predictable” funding. Some four decades ago, Treasury officials decided that regular and predictable — as opposed to tactical — issuance decisions were among the best ways to keep government funding costs at their lowest possible levels over time. Since then, Treasury has declared quite explicitly that it doesn’t seek to time the market. For some devotees to the doctrine, Bessent’s remarks on Monday will be heard as blasphemy.

A note from JPMorgan Chase & Co. on Monday suggested that Bessent doesn’t have an endless leash, and the T-bill share of total issuance could rise meaningfully above the long-term average recommended by the Treasury Borrowing Advisory Committee if the current trajectory is sustained. The bank said it would be prudent for Treasury to adjust its approach for fiscal year 2026.

President Donald Trump’s government has proved willing to use the tools at its disposal to affect market rates. In addition to issuance policy, that includes calling for more flexible bank capital requirements and stablecoin legislation that could boost Treasury demand. While the proposals have their own merits, they’re part of an explicit agenda to bring down borrowing costs that is clearly starting to undermine the independent central bank and veer into financial repression, as my colleagues Clive Crook and Allison Schrager have written. Trump’s own efforts through social media to cajole the Fed into lower rates are also part of this trend, and they reveal a level of concern from a government that is pushing to expand the already massive national debt and worried about how they’ll pay for it. 

Bessent’s policy has ended up looking very similar to Yellen’s — but probably a bit worse if you consider the secretary’s previous stance. And he’s even saying the quiet part out loud: The former hedge fund investor is tactically moving away from a pure “regular and predictable” doctrine and trying to trade macroeconomic developments. When I wrote about this in February, the risk was that the Trump administration’s tariff experiments would unanchor inflation expectations — and the entire thing might backfire. Today, with another four months of inflation data in hand, I think Bessent might have the right tactical call. But there are substantial risks: If he’s wrong in his interest rate forecasts, there will eventually be hell to pay. 

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This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Jonathan Levin is a columnist focused on US markets and economics. Previously, he worked as a Bloomberg journalist in the US, Brazil and Mexico. He is a CFA charterholder.

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