Scott Bessent gets it.

I mean, not the part about it being a potentially bad idea to let Elon Musk and a few of his buddies access sensitive Treasury data and payment systems. That he apparently doesn’t get.

But Bessent does understand the bond market’s concerns regarding upsized auctions at a time when there are more questions than answers about America’s fiscal trajectory and when most doubt seriously the notion that bipartisan budget reform’s possible given the violently fractious political environment.

If you need the backstory here, you’re strongly encouraged to review “Scott’s First QRA.” The short version is that Bessent, in his first quarterly refunding as Treasury Secretary, retained key forward guidance around issuance in a bid to avoid additional term premium rebuild. That forward guidance was inaugurated early last year, and it reads as follows:

Based on current projected borrowing needs, Treasury anticipates maintaining nominal coupon and FRN auction sizes for at least the next several quarters.

In other words, coupon increases are a Q4 event if they’re a 2025 event at all. That line from the QRA dates to the tail-end of Janet Yellen’s successful effort to placate an irritable Treasury complex, which was roiled in the summer of 2023 when a Fitch downgrade ignited a long-end selloff that culminated three months later in a cycle high for yields.

Yellen pacified the vigilantes with smaller-than-expected coupon increases in the final QRA of that year, then followed up the next quarter (i.e., in early 2024) with guidance indicating that Treasury was done increasing auction sizes for the foreseeable future. “Crisis” over. Or not. Because the term premium started to rise again in anticipation of a “red sweep” election outcome.

As the figure shows, Bessent’s efforts to keep the peace are bearing fruit so far. The estimated term premium at the 10-year point’s ~30bps off the wides. He surely doesn’t want to poke this particular bee hive again until it’s absolutely necessary, or anyway not until the Fed stops QT.

In addition to the perception that both inter- and intra-party fighting will make cobbling together a credible plan to address America’s debt and deficit “problems” impossible (no one’s capable of herding those cats anymore), Treasurys are also grappling with a shifting buyer base which is increasingly comprised of price-sensitive investors. That, as opposed to price-agnostic buyers like the Fed. In short: The market’s a market again, or at least more of a market than it was, and that means the fundamentals matter.

That’s the context for Bessent’s remarks to Bloomberg on Thursday. In an interview, Scott said any effort to term out America’s debt profile (i.e., issue more at the longer-end of the curve) is “a long way off.” “We’re going to see what the market wants,” he told Bloomberg Surveillance.

That’s music to a lot of folks’ ears. Before getting the nod to succeed her, Bessent had quite a bit to say about Yellen’s alleged politicization of the funding mix, and specifically her hard lean into bills. There was some concern he’d endeavor to enshrine such criticism into his own issuance “strategy,” where that means he’d fund tax cuts for corporate America and the rich with upsized auctions 10 years and out.

For now, everyone can rest easy, though. Any terming out will be “path dependent,” Scott said Thursday. When Bloomberg asked about his politically-charged accusations of politicization (and yes, there’s a lot of embedded irony there), Bessent offered only that Yellen “shortened some of the duration, and we haven’t shortened it further.”