Guessing game over Trump's Treasury pick adds to US bond market's negative mood
Top three candidates are all ''qualified adults,' analysts say
Kevin Warsh leads bets for Treasury secretary role
Investors worry about Fed independence under Trump administration
By Davide Barbuscia
Nov 22 (Reuters) -Investors are hoping President-elect Donald Trump will name a Treasury secretary soon who will assuage their concerns about the Republican's policy promises that have weighed on an already sagging U.S. government bond market.
The benchmark U.S. 10-year yield, which moves inversely to bond prices, is hovering near a five-month high as traders fret about the potential for a rebound in inflation and increase in the federal budget deficit from Trump’s economic plans such as tax cuts and import tariffs.
More recently, uncertainty over who will fill the Treasury role has added to investor concerns.
The latest leg of the Treasury selloff is due to worries over “fiscal concerns, increased spending and (the) Treasury secretary,” said George Catrambone, head of fixed income and trading at DWS.
According to a Wall Street Journal report on Thursday, former investment banker Kevin Warsh, who served on the Federal Reserve Board, is one of Trump's Treasury secretary candidates on the understanding that he could later become Fed chairman. That deepened uncertainty and fueled investors’ hopes that a resolution would be quick in coming.
Other top candidates include investor Scott Bessent and Apollo Global Management Chief Executive Marc Rowan. Wagers on who will get the job have drawn over $5 million in bets on the Polymarket prediction platform with Warsh in the lead, followed closely by Bessent.
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 the individual's economic views and the kind of counsel they will give Trump behind closed doors.
Campe Goodman, Wellington Management Company fixed income portfolio manager, said yields would ease if Trump nominated a Treasury secretary who makes a point of addressing worries that key Trump policies will add to the budget deficit and inflation.
“I think whoever (Trump) gets is probably going to talk a little more fiscally responsible than the market expects,” he said. “I think he’ll want someone who talks somewhat responsibly.”
Analysts at BMO Capital Markets said investor anxiety over the pick has been comparatively subdued because all three top contenders “fall into the category of qualified adults in the room” though the market prefers the question be settled quickly.
Investors are also focused on the new administration’s position on Fed independence since 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.
"I hope the Fed stays independent because that’s good for the bond market,” said Goodman.
Reporting by Davide Barbuscia; Writing by Ira Iosebashvili; Editing by Cynthia Osterman
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
