New Battle in the U.S. Bond Market: "Bessent Put" vs. "Powell Put"

TradingKey — For decades, U.S. bond traders adhered to the mantra: "Don’t Fight the Fed." But now, as Treasury Secretary Scott Bessent repeatedly pushes to lower the 10-year Treasury yield, a new slogan is gaining traction: "Don’t Fight the Treasury."

Reflecting this shift, two terms have emerged in financial markets: the "Powell Put" and the "Bessent Put." The former refers to the expectation that Fed Chair Jerome Powell might pivot monetary policy in response to economic downturns or stock market declines. The latter signals Bessent’s commitment to using fiscal tools to suppress benchmark interest rates.

The Federal Reserve has long shaped markets through interest rate adjustments, open market operations, and policy signaling. The phrase "Don’t Fight the Fed" encapsulates the idea that investors should align their bond trades with the Fed’s monetary stance. 

A cautionary example comes from the 1970s and 1980s, when then-Fed Chair Paul Volcker hiked rates to 20% to tame inflation, pushing investors who bet against his hawkish policies.

Today, however, the narrative is increasingly being shaped by Bessent’s Treasury Department. He has repeatedly argued that the 10-year Treasury yield should "naturally decline" as Trump administration policies take effect. 

Bessent maintains that both he and President Trump are focused on using fiscal measures—such as cutting government spending—to sustain lower long-term interest rates, rather than relying solely on the Fed’s control of the federal funds rate.

While the Treasury traditionally influences yields through bond issuance and debt management, Bessent’s explicit rate-targeting rhetoric represents a notable shift in tone and strategy. 

Institutions including Société Générale, Barclays, and RBC Capital Markets have already lowered their 2025 forecasts for the 10-year Treasury yield, citing Bessent’s fiscal approach as a key factor. Société Générale now projects the yield will fall to 3.8% by year-end, while Barclays and RBC forecast 4.0% and 4.2%, respectively.

As of March 24, the 10-year Treasury yield has fallen over 50 basis points from its January peak of 4.80%, currently trading at 4.273%.

[2025 10-Year Treasury Yield, source: TradingView]