Via the Wall Street Journal: Trump Wants to Bring Down Treasury Yields. Here’s What to Know.
The Trump Administration is focused on lowering the 10-year Treasury yield, a key benchmark that influences borrowing costs on everything from mortgages to corporate bonds. Sam Goldfarb of the Wall Street Journal, breaks down how Trump might try to accomplish this and what he’s up against.
Word on the Street:
Excerpts from the Wall Street Journal article:
How could a president bring down yields?
- The most obvious way that presidents can move Treasury yields is through fiscal policy. A smaller budget deficit means less government borrowing and a reduced supply of new Treasurys. That can push up the prices of existing bonds, driving their yields lower.
- [Treasury Secretary] Bessent recently leaned into this idea in an interview with Bloomberg Television, arguing that the 10-year yield could decline if the Elon Musk-led Department of Government Efficiency is able to reduce government spending.
- Republicans over decades have shown that “we like spending—we just wanted to raise it less, the Democrats want to raise it more,” Bessent said. But, he added, “what if it actually goes down because of everything we’re doing right now?”
Are there other options?
- Administrations also have discretion over the types of debt they issue. To avoid putting pressure on longer-term yields, Treasury can issue more T-bills, which mature in a year or less, rather than notes and bonds that carry two- to 30-year maturities.
- Finally, Bessent said that the administration could get the 10-year yield “to naturally come down” by increasing the supply of oil and gas. That, he said, would drive down energy prices and help power what he called “noninflationary growth.”
- Although the Fed often focuses on an inflation measure that excludes energy prices, which can be volatile, that could still help lower rates. Falling oil prices can lower costs for other goods, such as plastics made out of petrochemicals. That, in turn, could bring down Treasury yields, which are heavily influenced by the expected path for rates.
- The House Budget Committee approved a plan in the past week that targets tax cuts of $4.5 trillion over a decade relative to current law. It also aims for $2 trillion in spending cuts, paired with $300 billion in new spending, likely for immigration enforcement and the military.
- The 10-year yield settled Friday just below 4.5%, down from around 4.8% in mid-January though still up from around 4.3% right before Trump’s election win.
The Bottom Line:
Hope is on the horizon. After four years of fiscal failures incurred by the Biden-Harris administration, fiscal and economic sanity will once again prevail with President Trump and Treasury Secretary Bessent at the helm. Reducing government spending and strategically increasing U.S. oil and gas production are essential to restoring sound governance in Washington. Combined, these policies would spur economic growth, ease inflationary pressures, and lower borrowing costs for both the government and American families.
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