Watch out for interest rates.
Not the short -term rates that are checked by the Federal Reserve. In addition to an unforeseen financial crisis, they do not go anywhere, especially after the jump in the inflation that the government reported on Wednesday.
Instead, pay attention to the 10-year-old Treasury revenue, which has travels around 4.8 to 4.2 percent since the elections. That is not an unreasonable level in the past century or something.
But it is much higher than the average of 2.9 percent of the last 20 years, according to FactSet data. On the upper range, that 10-year return can be high enough to dampen the enthusiasm of many entrepreneurs and stock investors and to control the stock market and the economy.
That is a problem for the Trump administration. So the new Minister of Finance, Scott Bessent, has explained downright what is becoming increasingly clear. “The president wants lower rates,” Mr Bessent said in an interview with Fox Business. “He and I are focused on the 10-year-old treasury.”
Treasuries are the safe and stable core of many investment portfolios. They influence mortgages, credit cards, business debt and the exchange rate for the dollar. They are also the standard with which commercial, municipal and sovereign bonds are priced all over the world.
What those treasury rates are moving now are the assessments of bond traders of the Economy-included the on-again policy of the Trump administration, rates policy, as well as its actions in the field of immigration, taxes, expenses and much more .
Mr Bessent and President Trump want those rates to be considerably lower and they try to discuss them. But much of the president's policy has the opposite effect.
The president needs the bond market by his side. When it comes to rejecting his policy, the rates will rise and the economy – together with the fortunes of the Trump government – will certainly suffer.
Treasuries, no fed rates
Mr Bessent can focus on the Treasury rates, or yields, partly to alleviate the pressure on the Federal Reserve, which President Trump often picked up in his first term and on the campaign track.
The independence of the Fed is sacred by most economists and many investors. During the campaign, Mr. Trump repeatedly called on the Fed to lower the rates. Yet any threat to the ability of the Fed to operate freely can panic, which is clearly not what Mr Trump wants.
On the contrary, when the markets are strong, he often calls them as a barometer of his popularity. In 2017, he boosted the performance of the stock market on average once every 35 hours, calculated polico.
Shortly after the November elections I wrote that the Markets can limit some of Mr Trump's actions. But I wouldn't go too far with this now. Few government services or traditions seem to be forbidden for the aggressive changes in the administration in the policy or reduction of workforce, conceived by Mr Trump's sidekick, the billionaire-disturer-in-chef, Elon Musk. Take a look at the Times table of the actions that have been taken since January 21. It's dizzy.
Yet the administration has so far at least remarkably careful when it comes to the FED. That does not mean that President Trump has completely limited himself: he continued to mock the Fed and says in a social media post that “the problem they have created with inflation did not stop” and wasted his time on issues such as “dei , gender ideology, 'green' energy and fake climate change '.
Nevertheless, Mr Bessert specifically said that Mr. Trump “does not call on the Fed to lower the rates.” Instead, the Ministry of Finance said: “If we deregulate the economy, if we do this tax assessment, if we get energy, the rates will take care of themselves and the dollar will take care of itself.” The president has not contradicted him. Until now, trying to control the Fed is a rule that Mr. Trump has not yet exceeded. The bond market is another matter.
Long -term rates
Treasury rates usually do not have collected the large headlines that are often devoted to the Federal Reserve.
The Fed is easier to explain. When it increases or lowers short -term rates, it is clear that someone Taken action and caused a measurable change.
In reality, when we report that the Fed is lowering or increasing the rates, we mean that it is shifting its most important policy rate, the federal fund rate. That is what banks charge each other for borrowing and borrow money at night. It is important if a signal – a red or green light for stock traders – and “it influences other interest rates such as the Prime rate, that is the tariff banks that will charge their customers with higher credit trails,” said the Federal Reserve Bank of ST. “Moreover, the federal funds indirectly influence interest rates in the longer term.”
What causes shifts in long -term rates is much more difficult to locate because they are set by an amorphic force: the market, with treasury in the core. Daily day you don't hear much about it unless you are already a Bond Maven.
How does market prices set? Supply and demand, the preferences of buyers and sellers, trade rules – the study books say that these and other factors determine market prices. This applies to tangible things such as milk, eggs, gasoline, a house or a car. Treasury prices – and those of other bonds, which use treasuries as a reference – are more complicated. They include estimates of the future of interest rates, of inflation and of the intentions of the FED.
The Fed determines at night, which for a simple reason is indirectly involved in bond rates. The interest rate for a 10-year-old treasury reflects assumptions over many, many days of overnight stay, chained until they span the lives of any bond you buy. Inflation is important because when it rises faster than expected, it will reduce the real value of the income flow that you receive from standard bonds.
That happened in 2022. Inflation died and the proceeds also died, while bond prices, which move in the opposite direction, fell for bond funds and for individual bonds sold under those circumstances.
That is why the increase in inflation in January, to an annual rate of 3 percent for the consumer price index of 2.9 percent of the previous month, immediately increased the 10-year treasury strip that is above 4.5 percent. Trump administration policy also weigh on bond prices and revenues.
Mr Bessent has pointed out that oil prices are an important ingredient in inflation and therefore bond returns. But whether Mr Trump will be able to lower oil prices by encouraging drilling – while subsidies and regulations are eliminated that encourage the development of energy alternatives – is open to questions.
Some Trump policy are sold as promoters of economic growth – such as reducing regulations and tax rates – that could have an effect. But others, such as reducing the size of the labor force – who will do his deportations of immigrants without papers and restrictions on the arrival of new immigrants – can slow down growth and increase inflation.
That could be the rates that he threatened, delayed and in some cases already imposed. The expectations for future inflation jumped in the monthly survey of the University of Michigan in January. Joanne HSU, the director of the survey, said that this reflects the growing concern about the Trump rates among consumers.
“These consumers generally report that tariff increases go to consumers in the form of higher prices,” she wrote. She added that “recent data show a rise of inflato psychology for purchasing in-law to prevent future price increases, the proliferation of which would generate a momentum for inflation.”
None of that is not good for the 10-year-old Treasury yield. Nor is a warning issued by five former Treasury Minister – Robert E. Rubin, Lawrence H. Summers, Timothy F. Geithner, Jacob J. Lew and Janet L. Yellen – who served in democratic administrations.
They wrote in the New York Times that the raids of Mr. Musk's cost -saving team in the treasury payment system threaten the “dedication of the country to make up for our financial obligations”. They welcome Mr Bessent that they have ensured the congress in writing that the Treasury will protect the 'integrity and safety of the system, given the implications of a compromise or disruption of the US economy'.
But they decided the need for every finance minister to have to make such promises in his first weeks in office.
Other potential speed points for treasury output loom. In the past, the FED has manipulated the range of market bonds by buying and selling effects. It is now reducing its interest, which could put an upward pressure on interest rates – and the Fed could make an irresistible Trump. At the same time, Secretary Bessent finances the government debt, mainly with shorter accounts, but it may not happen that the supply of the long -term treasury is increased indefinitely as the federal deficit swells. Nevertheless, the congress is cautious to increase the debt ceiling, which will bite later this year.
These are difficult times. Until now, the 10-year yield has not shifted so much. At least the markets have steadily held.
