TLDR
- Trump administration aims to lower 10-year Treasury yield through inflation control and reduced fiscal spending, with Treasury Secretary Bessent focusing on energy supply management
- The plan involves controlling inflation rather than directly pushing the Federal Reserve to cut interest rates, potentially creating a favorable environment for Bitcoin
- Current 10-year yield has decreased by 38 basis points to 4.42%, though ING analysts suggest limited room for further decline
- New Department of Government Efficiency (DOGE) established to reduce wasteful spending and regulations
- Market experts express skepticism about the feasibility of implementing substantial spending cuts in major areas like healthcare and Social Security
The Trump administration has unveiled its strategy to lower the yield on the 10-year Treasury note, marking a new approach to managing government borrowing costs. Treasury Secretary Scott Bessent announced the plan on Wednesday during an interview with Fox Business, emphasizing that the focus would be on controlling inflation rather than pressuring the Federal Reserve to cut interest rates.
The 10-year Treasury yield, currently at 4.42%, serves as a benchmark for various types of loans throughout the economy, including mortgages and business financing. This rate has already decreased by 38 basis points, reflecting market expectations of lower energy prices and controlled inflation.
Bessent highlighted energy supply management as a key component of the administration’s strategy to control inflation. The Treasury Secretary pointed to energy costs as one of the most reliable indicators of long-term inflation expectations, suggesting that increasing energy supply could help achieve their goals.
The Federal Reserve has already reduced benchmark borrowing costs by 100 basis points since September, bringing the range to 4.25%-4.5%. While these rates remain relatively high, the administration’s plan could create conditions for further cuts without directly intervening in Fed policy.
A notable aspect of the strategy involves reducing the federal budget deficit through decreased government spending. The theory behind this approach is straightforward: less government borrowing means fewer bonds in the market, which typically leads to higher bond prices and lower yields.
To support these efforts, the administration has established the Department of Government Efficiency, or DOGE, tasked with identifying and eliminating wasteful spending while reducing federal regulations. This new department represents a concrete step toward implementing the administration’s fiscal goals.
Some market participants view the strategy as potentially beneficial for Bitcoin and other risk assets, as lower yields traditionally encourage investors to seek higher returns in alternative investments. However, this perspective comes with important caveats.
The relationship between government spending and market stability has become more complex in recent years. During the Biden administration, high levels of fiscal spending helped offset the impact of elevated Federal Reserve rates on financial markets. Some analysts worry that sharp spending cuts could destabilize various asset classes, including cryptocurrencies.
Eamonn Sheridan, ForexLive’s Chief Asia-Pacific Currency Analyst, expressed skepticism about the feasibility of implementing major spending reductions. He noted that while initial cuts have targeted programs like USAID and federal employment, these represent only a small portion of total government expenditure.
The majority of U.S. government spending remains concentrated in healthcare, Social Security, and defense. Sheridan questioned whether the Trump administration would be willing or able to make substantial cuts in these politically sensitive areas.
ING analysts have also voiced doubts about the potential for sustained yield reduction. They suggest an effective floor exists just under 4%, based on current federal funds rate projections. According to their analysis, the 10-year Treasury yield would need stronger drivers than current proposals to move substantially lower.
The Treasury market has shown initial responsiveness to the administration’s plans, with yields declining as markets factor in expectations of lower energy prices and non-inflationary growth. However, the sustainability of this trend remains uncertain.
Market observers continue to monitor the implementation of these policies, particularly the progress of the newly formed DOGE department in achieving its mandate. The department’s effectiveness in reducing spending and regulations will likely play a crucial role in determining the strategy’s success.
The most recent data shows the 10-year yield maintaining its position around 4.42%, with markets continuing to assess the potential impact of the administration’s proposed measures on both government borrowing costs and broader financial markets.
