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Bessent's Appointment: A Beacon for US Bond Market

• Scott Bessent's appointment as Treasury Secretary is expected to stabilize the U.S. bond market.
• Bessent, a fiscal conservative, is praised for potentially bringing more fiscal discipline.
• Investors are keen on Bessent's views on managing U.S. government debt and his reaction to potential economic crises.
• The independence of the Federal Reserve under the new administration is a key focus for investors.

The recent announcement of President-elect Donald Trump's choice for Treasury Secretary, Scott Bessent, has been met with a sigh of relief from investors. The U.S. government bond market, which has been under a cloud of uncertainty and gloom in recent weeks, is expected to see a lift with this appointment. Bessent, a prominent investor, was announced as the Treasury Secretary on Friday, a key cabinet position with significant influence over economic, regulatory, and international affairs. This announcement came after days of speculation that had been weighing heavily on the Treasury markets.

These markets were already grappling with concerns over a potential rebound in inflation and an increase in the federal budget deficit due to Trump's economic plans such as tax cuts and import tariffs. The U.S. 10-year yield, which inversely moves to bond prices, has been hovering near a five-month high following a weeks-long sell-off in Treasuries. The uncertainty over who would fill the Treasury role had added to the sell-off in recent days.

Michael Purves, CEO of Tallbacken Capital Advisors in New York, expressed relief at the announcement. He said, "This is the big thing everyone's been waiting for. There was some level of anxiety priced in that Trump was going to pick someone who was not good or some kind of absolute tariff fanatic, so this is a very good answer for Wall Street."

Bessent: A Fiscal Conservative

The Treasury Secretary oversees U.S. economic and tax policy, and Trump's nominee will be tasked with carrying out his plans. As a result, the investment world, from global bond traders to U.S. corporate treasurers, is keenly interested in his pick's economic views and the kind of counsel they will give Trump behind closed doors.

Joe McCann, founder and CEO of cryptocurrency fund Assymetric, praised the nomination. He said, The beauty of this nomination is that Bessent is a fiscal conservative. Since the election, 30-year bond yields have ripped higher, on the expectation that Donald Trump will bring about higher deficits. Now this sets the stage for more fiscal discipline, which the market is really going to welcome.

Bessent, who did not immediately respond to a request for comment, has advocated for tax reform and deregulation, particularly to spur more bank lending and energy production, as noted in a recent opinion piece he wrote for The Wall Street Journal. Christopher Hodge, economist for U.S. at Natixis, hopes Bessent can present a markets-focused perspective that could mitigate the chances of extreme tariffs or a trade war.

Investors' Expectations and Concerns

Trump has floated the idea of slapping a 60% tariff on Chinese goods and at least a 10% levy on all other imports. Hodge said, Someone attuned to markets will be able to convey the potential risks. Ed Al-Hussainy, senior interest rate strategist at Columbia Threadneedle, said any new Treasury secretary would come under scrutiny from investors eager to know the person's views on key aspects of the job, from managing the maturing structure of U.S. government debt to how the person would react in a recession or during episodes of global financial turmoil.

Investors are also focused on the new administration's position on the independence of the Federal Reserve because central bank policy is a key factor in Treasury price moves. Trump in August said the president should have a say in Fed decisions, and according to media reports, his allies have drafted proposals to erode the Fed's independence. Campe Goodman, Wellington Management Company fixed income portfolio manager, earlier on Friday said, I hope the Fed stays independent because that's good for the bond market."