Investors rejoice at Scott Bessent confirmation testimony

While both equity and treasury investors have long loved the prospect of the president-elect putting Bessent in charge of financing our $36 trillion national debt, Bessent exceeded expectations at Thursday’s hearing, promulgating the best possible promise of a second Trump term and successfully combining Trump’s heterodox priorities into a cogent and coherent fiscal agenda.

Bessent pledged to push Trump’s tariff and sanction regime not in a futile attempt to wage friendly fire against our allies but to punish our enemies and friendshore crucial supply chains in the name of national security. Correctly branding the extension of the expiring provisions of Trump’s signature Tax Cuts and Jobs Act “the single most important issue of the day,” Bessent warned that failing to preserve the TCJA would prove an “economic calamity” with a “gigantic middle-class tax increase” and “the child tax credit halved.” However, markets were most jovial over Bessent’s withering assessment of the Treasury’s balance sheet.

“We do not have a revenue problem in the United States of America — we have a spending problem,” said Bessent of our unprecedented deficit amounting to 7% of our GDP. “We have never seen this before when it is not a recession or not a war. Treasury, along with full government and Congress, has used its borrowing capacity to save the Union, to save the world and to save the American people and what we currently have now, we would be hard pressed to do same.”

Adhering to Trump’s insistence that his administration not touch the mandatory spending that comprises the majority of federal spending, Bessent beckoned Congress to take a blow torch to domestic discretionary spending, which, he noted, has increased by a staggering 40% over the course of Joe Biden’s presidency.

The treasury secretary is the second-highest ranking member of the president’s Cabinet, and thus the fifth in the order of presidential succession, and Wall Street always waits with bated breath for news of a novel treasury secretary for a good reason. Beyond the daily operations of printing dollars, collecting taxes, and paying off the nation’s bills, the Treasury tempers the most perilous possibility of defaulting on our national debt, both through the long-term strategy of deciding when and how to finance maturing debt and in the fact of an acute deadline of Congress failing to increase the debt ceiling.

Bessent will inherit a sloppy balance sheet from outgoing Treasury Secretary Janet Yellen, who made the disastrous gamble ultralow interest rates would persist indefinitely despite rampant inflationary spending by her boss and then, inevitably, inflation. Yellen doubled the share of government borrowing financed by short-term securities to nearly a third of our national debt. When that debt matures into a decidedly higher interest rate environment, Bessent will be responsible for financing the greatest deal for the most consequential client of all: the U.S. taxpayer.

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So, while the stock market saw a modest bump when Bessent took center stage, bond markets saw the most momentous movement, with the two-year Treasury yield falling by roughly 10 bps and the 10-year Treasury yield plummeting by 15 basis points. Recall that bond yields move inversely to prices, so sliding bond yields translate to higher bond values and, crucially for the Treasury Department, cheaper borrowing costs for Uncle Sam.

Investors are correct to fear the consequences of the chaos and incompetence of Bidenomics, but with Bessent at the helm of the Treasury to right the ship, markets believe Trump can make fiscal policy great again.