Long End of the Curve Drops 13bps After Trump Chooses Bessent for Treasury Secretary

Rates plummet as markets celebrate Trump’s Treasury Secretary nomination. Trump’s election of Scott Bessent as Treasury Secretary, announced Friday, fueled a 4-13bp decline in rates today. The decline commenced just after 7 AM ET and continued throughout the session, reflecting a pullback in the “Trump trade” as markets expect Bessent to offer a more moderate approach to policy. The 2-year and 10-year Treasury yields closed at 4.27%, and the 10-year yield declined below the 2-year yield for the first time since early September. Brent and WTI crude oil prices plummeted as well, fueled by both Bessent’s nomination and reports that Israel and Hezbollah are nearing a cease-fire.

Who is Scott Bessent and what does he do? Recently appointed by Trump as Treasury Secretary, hedge fund manager Scott Bessent is expected to push for a careful approach to tariffs and the budget deficit. Bessent said earlier this month that tariffs should be “layered in gradually,” and markets are optimistic that cautious implementation will limit sustained inflationary pressures. Bessent has backed a “3-3-3” economic plan: cutting the budget deficit to 3% of GDP by 2028, raising GDP growth to 3%, and increasing energy production by 3 million barrels of oil per day. He believes that growth can be achieved through tax cut renewals and deregulation, both of which were key points to Trump’s campaign. Bessent is aligned with several of Trump’s proposed policies, but his more meticulous approach could provide for a more balanced administration.

OPEC+ supply cuts are nearing their finale. A coordinated effort by OPEC+ members to curb crude output has helped support $70+ crude barrel prices for most of 2024. Following several temporary extensions in 2024, the expiration of the oil cartel’s informal agreement nears, prompting observers to weigh the impact on oil prices in 2025. If OPEC+ immediately ramps up production, some analysts see oil prices falling to COVID-era levels, near $40 per barrel. However, OPEC+ is largely expected to gradually increase production rather than immediately shock the market with new supply. That would be a helpful outcome given the International Energy Agency (IEA) expects muted demand from major consumers such as China, more oil production from non-OPEC+ nations, and continued alternative-energy growth to cause global oil supply to exceed demand in 2025, even if OPEC+ continues to restrict output. Citi analysts forecast Brent crude will average $60 per barrel in 2025. Reduced energy prices contribute to lower headline inflation readings, but they also create more room in consumer spending budgets, a key driver of core inflation.