Bessent's big test

So Mike, the yield on the US 10-year has reached its highest, as you just said there, since 2007.

It's moving really in tandem with the oil price, which of course Treasury Secretary Scott Bessent can do nothing about.

But what could he do as markets start to put pressure on him here?

Bessent heads to the, to the Hill, uh, to the House Financial Services, uh, Committee, uh, today, and he has so much on his table now.

Number one, the Treasury yield, as w- as we just outlined, uh, continues to rise despite his tentative plan to try and cap those yields with buybacks recently.

He's also got that issue of that joint intervention with Japan, um, that, uh, for now seems to have worked, but, but, but we have a Bank of Japan meeting this week, so, so a lot of people will wait for that outcome.

He then has to, um, obviously deal with a potential rate rise from the Federal Reserve, which complicates, uh, the Treasury's position as well, given that the market is now pricing as mu- as many as four rate hikes over the next year.

And of course he's got an economic war with Iran that he's trying to o- outline, uh, a- as well as comments recently from, from his boss, the President, uh, that he was minded to give, uh, each American $5,000 checks, uh, which would cost the Treasury somewhere in the region of $1.3 trillion.

So an awful lot on Bessent's plate, an awful lot of pressure on him to come up with, uh, uh, if nothing else, the right words and the right way to frame everything that's going on.

So, but the bond market, I think, is, is really, uh, the one that's gonna be most worrisome for him, I would say.

What does the bond market want to hear?

Well, the bond market's feeding off a number of things.

The energy prices, as, as you say, is, is probably the biggest aggravator over the last, uh, sort of week or two because we have oil still chomping at the bit.

Crude pri- Brent crude now above 107 again today.

Now, we were a little bit higher yesterday.

There was then a swoon in that, uh, in, in that, uh, oil price, uh, briefly in the, uh, US session when Trump suggested that, uh, there had been an agreement between Ukraine and, um, uh, the Russians on not hitting each other's energy infrastructure.

That seemed to cool the market a little bit, but it transpires that there is no such agreement in place because, uh, the Ukrainians at least have said the z- Russians have made no commitment not to attack its in- energy infrastructure.

So this is outside of Bes- Bessent's remit.

Um, but he has been very much to the forefront of the, uh, Iran conflict, which is also feeding the oil price.

That, combined with the Federal, uh, Reserve's likely interest rate hike this week, uh, is really what the market is trying to reprice, and there's not an awful lot he can, he can do in that except to clarify what that buyback intention, uh, was about.

Will there be more? Will he up the size of that buyback, for example? Uh, does he have the money to do that? Um, are there other ways in which Treasury itself could calm the market if it gets out of hand? And, you know, we are reaching kind of significant levels which for, for all financial markets, including the stock market, people are gonna sit up and take notice.

There has been a lo- a lot written about whether above 5% on 10-year yields is a moment where mixed asset portfolios might decide to, uh, shift fr- away from stocks.

And with the AI story we've been dealing with this week, maybe there's a, maybe there's a, a, a perfect storm brewing.

Absolutely.

The market didn't seem too impressed by the scale of Bessent's buyback the first time around.