A few days ago, one brave reader endeavored to lecture me on the alleged genius of Scott Bessent’s masterplan.
That’d be the same plan Bessent successfully pitched to Wall Street, which dutifully parroted the administration’s narrative to clients. Trump, that narrative held, was determined to bring down 10-year US yields. The stock correction and a potential economic slowdown were a means to that end, or at least could be.
It was never entirely clear whether that narrative actually originated with Bessent or whether it was an example of Wall Street reverse engineering an excuse for a stock pullback they didn’t predict, only to see that excuse picked up by the administration. Either way, it received a lot of air play.
“Treasury yields are what they are looking at,” the commenter mentioned above declared, referencing Bessent’s contention that the Trump administration’s policies were working as intended. Bonds, the same reader went on, “need to surge as deflationary forces take hold.”
That was around noon on April 7 and I gotta say, the timing left something to be desired. 10-year US yields rose 14bps that day and proceeded to rise another 33bps over the balance of the week. By the time it was all said and done, Bessent, who needed Treasurys “to surge,” was instead left “looking at” one of the worst Treasury selloffs in recorded history.
There it is, folks, in all its glory: The second-largest weekly jump in benchmark US borrowing costs since 1986. And a masterplan gone horribly — hilariously — awry.
Little did the commenter mentioned above know when he was engaging me in a debate, but the Treasury market was in fact seizing up in real time. I knew it, though, being privy to an all-day firehose of commentary from Wall Street, a lot of which emanates from rates desks.
Late Tuesday evening, I broke the bad news: There was an unfolding buyers’ strike in Treasurys which had, by the end of that session, crescendoed into what one desk called “an absolutely spectacular meltdown which has many question[ing] their sanity.” Long story short, Scott had a problem. And he still does.
Here’s the thing: “Deflationary forces” aren’t the only reason why stock selloffs and/or recessions tend to be accompanied by lower Treasury yields. Another reason is that Treasurys are the safest assets on Earth, and so tend to be bid when things go wrong. Bessent didn’t account for the possibility that investors might suddenly view Treasurys as risky assets commensurate with the irrationality exhibited by his boss, one “Tariff Man.”
By mid-week, things were so bad that pretty much every rates strategist on Wall Street had sent around a list of measures the Fed might undertake to rescue Scott and his Treasurys from what was described, at one point Tuesday, as a “bidless” void.
Some worried that foreigners, furious with Trump’s tariffs, were engaged in an effort to drive up US borrowing costs, and although stop-throughs at Wednesday’s 10-year auction and Thursday’s long bond sale allayed those fears, there’s palpable concern that “Liberation Day” did permanent damage to investor psychology.
Let’s be clear: Scott’s complicit, but this isn’t, strictly speaking, his fault. It’s Trump’s fault, but good luck telling him that. By his own admission, Trump was cognizant by Wednesday that the bond market was unhappy, but he’s never going to take the blame. For anything. Those conversations go something like this. “Why didn’t you tell me this was going to happen?” “I did.” “You’re fired.”
By most accounts, Bessent tried to talk Trump out of a maximalist tariff position, but it didn’t work. By the time Bessent got through and Trump backed off, it was too late.
It looks like the administration’s going to announce carveouts and exemptions in the days ahead to shield US consumers — whose inflation expectations rose to the highest since the early 80s this month, according to the preliminary read on University of Michigan sentiment for April — from some of the price increases that’d otherwise be coming, and a US recession now seems like a foregone conclusion.
Between those two factors and favorable inflation data (CPI and PPI), it’s possible the Treasury panic will prove short-lived, particularly if Trump comes to some manner of agreement with Beijing to pause an absurdist tit-for-tat which already has the world’s two largest economies taxing each other at triple-digit rates, a self-evidently unsustainable, mutual suicide mission.
But on a lot of accounts, the damage here’s done. No one’s going to view Treasurys the same way ever again, and as such, many fear Bessent’s going to be staring at a bidless US long-end again sooner or later. If that happens, it’ll require Fed action and quite possibly some sort of emergency regulatory relief for banks, which in this case would mean giving Jamie Dimon what he wants so JPMorgan can lend its balance sheet. I wonder if Bessent’s stint at Treasury would survive that.
Steve Mnuchin’s weird. In a lot of ways, but particularly for the almost uncanny shrewdness he exhibited while serving as Trump’s front man at Treasury. Can you imagine how hard that job must be? Just look at how bad things already are for Bessent less than three months in. Mnuchin survived in the role for four years, and even more remarkably, emerged from that experience more or less unscathed. Steve wasn’t exactly a popular guy anyway, but no one hates him any more now than they did before he served Trump. That’s incredible.
Don’t expect Bessent to replicate that feat. In fact, don’t expect Scott to stay in the role at all. I wouldn’t be surprised if he’s gone by summertime. Gabriel Sherman — whose reporting I’m admittedly skeptical of — suggested Friday that Bessent might just up and quit on Trump.
The problem here — and this is, I assume, obvious — is that if Bessent were to quit or be fired, whatever bad was going on in the bond market would get a helluva lot worse, and in a hurry.
We think there is uncertainty out here. Imagine those hangers on that could accidently say the wrong thing or be in the room with Trump when s— happens! Their jobs, POOF! Then they will be blamed, shamed…Oh the humanity !
H: for the above mentioned reader to believe that is stupid…. But to engage in a debate with you tells me he/she is a idiot!
Hi Walter, thanks for chiming in. I’m just here to learn and exchange ideas. If you have a specific point of disagreement, I’d love to hear it—hopefully without name?calling. I think we all get more out of a discussion if we stay respectful and focus on the issues at hand rather than resorting to insults. Thanks in advance for understanding.
Mark Twain — ‘It’s better to keep your mouth shut and appear stupid than open it and remove all doubt’
Here’s a concise restatement that should capture your main points and keep the tone neutral and educational:
Hi, I’m that reader you mentioned—definitely not an expert, so please keep this apolitical and just help me understand.
Pre-Trump Backdrop
Before Trump, headline inflation kept drifting lower, but core inflation stayed stubborn. Then, during Trump’s first term (especially under COVID responses), we arguably planted the seeds for today’s inflation.
Fed/Treasury Backstops
Whenever markets threaten a major selloff, the Fed steps in (QE, rate cuts, Repo facilities, etc.), preventing recessions from fully clearing out “excesses.” Savers get punished, assets stay propped up, and we never see real price discovery.
Tariffs & Automation
New tariffs can add to inflation, but might yield slightly better trade terms or onshore some production—though automation limits how many jobs actually return. Are these deals still worthwhile in the long run?
Market Volatility & “Puts”
The S&P was dropping, so Trump (or any administration) will “fire a bazooka” to backstop markets—protecting the dollar’s reserve status and bond markets. Watching only a week’s worth of Treasury yield moves may be misleading; deflation could still help affordability if markets correct more deeply.
Future of the S&P & Fed Intervention
If the S&P falls to, say, 4200, I assume the Fed steps in again (rate cuts, liquidity measures). But if it rockets to 7000 with inflation at 2%, don’t we just create another affordability bubble? Should the market only go up forever?
China & Treasuries
If China dumps Treasuries, what safer alternative do they really have? The U.S. still seems like the “best house on a rough block,” reserve-currency-wise.
Bottom Line
Is there truly zero upside to tariffs? Even modest, reciprocal rates (around 15%) might have some benefit, right?
Are we stuck in a cycle where any drop triggers a Fed or Treasury bailout, preventing a natural reset?
What’s the solution if markets stay artificially high, debt piles up, and affordability never improves?
Those are my core questions. I appreciate your insights—please keep it as unbiased and educational as you can.
One factor I didn’t emphasize enough is the basis trade. When traders go long cash Treasuries and short futures (or vice versa) to exploit tiny price discrepancies, even a minor spike in volatility can force abrupt unwinding of those trades, amplifying market moves. Combined with the possibility of strategic selling by China—or any large holder—this can create sudden chaos in bond markets.
I still wonder if we’re stuck in a cycle where recessions aren’t allowed to clear out excesses, and if tariffs are truly pointless or could offer some benefit by renegotiating trade terms. Likewise, do you see any scenario where the Fed/Treasury simply don’t intervene once things start spiraling? That, to me, is key to whether we ever get more natural price discovery.
God, here we go. Bruce, do you have any idea what kind of recession it’d take to get an economy-wide decline in the overall price level? You’d need mass unemployment sustained for a year or more. Nobody’s going to countenance that in advanced economies in the 21st century, least of all the masses whose cause you’re ostensibly championing here.
I’ve got news for you: You don’t want “price discovery,” you just think you do. I’ve heard that “natural reset” story about ten thousand times, told ten thousand different ways since 2008, and it’s disingenuous bullsh-t every, single time.
It’s easy to extol the virtues of a grand reset that purges every last vestige of misallocated capital when you’re safe at home, behind a keyboard. But how many of those Austrian / hard money / grand reset types are willing to get into a shootout to secure the last bag of potatoes at a looted grocery store that’s half ablaze? Not many, I’d wager.
I noticed several of those Austrian-leaning, “grand reset” macro-market blogs were the loudest complainers during the summer 2020 street protests across the US. Something like this: “Oh my God! ‘The Blacks’ are setting stuff on fire! Hide the children!” That doesn’t bode well for those folks’ odds in the “natural reset” scenario they spend all day advocating on their click-bait tabloids.
Once these tariff negotiations are settled, the net effect will favor the U.S. overall. The dollar’s reserve status and Treasuries won’t be jeopardized by tariffs—they’ll face bigger threats from our ever-growing debt (now at $36T), which has to be addressed eventually.
Meanwhile, markets keep getting backstopped, creating moral hazard and punishing savers. Stagflation and affordability issues (especially for the bottom 50%) won’t improve without some genuine market correction. I’m not calling for a depression, just enough of a downturn (maybe the S&P back to ~4K) to shake out excesses and let true price discovery happen.
This current 1-week “basis trade” issue fueling Treasury selling isn’t the real story; letting the free market function is. But it seems “doom sayers” and big-money bond vigilantes won’t let that natural correction play out.
Newsflash: Bond vigilantes ARE the free market.
I am always amazed at the Austrians and libertarians. They do not live in anything resembling reality. Sure a mild recession can offer an economy a decent reset-in hindsight! But it is almost impossible to know it is going to mild in advance. Once it gets going it has momentum. That’s why central banks never want outright deflation. Once it gets going and behavior by business and consumers change and it is hard to undo. A real world example is Japan- it took them 30 years to get out from under. Or the world after 1930. Only a massive world war made deflation go away and at what cost? Finally, Ayn Rand took social security….
Ah yes, the timeless wisdom of “Austrian and libertarian theories don’t resemble reality.” Clearly, central banks keeping rates near zero forever (while piling on debt) is the only path to a truly thriving economy—because, hey, it’s worked out magnificently so far, right? Nothing says “healthy market” like zombie firms stumbling around for decades on cheap credit, holding productivity hostage.
And of course, once deflation “gets going,” it’s unstoppable—so unstoppable, in fact, that Japan spent three decades proving how infinite QE and industrial policy can stave off total collapse, though “stagnation” might be a kind word for it. But hey, let’s just accept that a “mild recession” is never mild, so it’s best for central banks to engineer repeated boom?bust cycles with bailouts.
As for the Great Depression? You’re right—that only ended because a world war replaced idle hands with the arms industry. So clearly, the entire notion of letting the market clear inefficiencies is as quaint as the gold standard. Which reminds me: excellent point about Ayn Rand and Social Security—since one individual’s personal choices completely invalidate any and all free?market economics. Definitely bulletproof logic there!
But I’m glad you brought it up. The takeaway, naturally, is that deflation is so dangerous we must blow ever?larger bubbles to “fix” everything, ensuring we never pay any price for living on endless monetary stimulus. Because as long as the band plays on, there’s absolutely no chance of, say, a bigger crash down the road. Thank you for the brilliant insight—it’s certainly comforting to know that any mild correction automatically spirals into the 1930s.
I mean, look, I’m a little reluctant to ignore the distinct possibility that Bruce is just mad because he called, publicly, for a bond rally on Monday of what ended up being the second-worst week for bonds since 1986.
And that’ll be my final comment on this article, other than this: There’s always next week, Bruce.
Not sure why you’re focusing on a single week’s bond chart—I wasn’t talking about day?trading. My point on Monday was that if we ever allow a meaningful recession or deflation to run its course, bonds and usd would eventually rally. But given our debt?heavy system, it’s rarely “allowed” to happen without intervention.
The recent basis?trade shakeup triggered another “Trump put,” so both stocks and bonds got a quick jolt, but the broader market is still whipsawing with mean?reverting volatility. If tariff negotiations play out fully, any inflation from them could actually coexist with recession?driven deflation and help real price discovery—assuming we let it happen.
That’s my last word on it. Thanks, and here’s hoping for a calmer market next
I’ll be the univited asshole here: No one can answer your questions. No one knows. (Well,there are those who know but you must be a Triple-Platnum Elite Partner of our investment club to ne informed.)
Otherwise,, we just have to watch and learn. This aint a science.
I came here to learn, many years ago. I do so mostly by closing my mouth and opening my ears. Your proclivity to continue commenting shows that you think you know better than H, at the least. I can’t tell you how many times I wrote a comment but then deleted it instead of hitting ‘Post Comment’ after applying ONE standard to what I wrote:
Is this comment adding anything to the conversation? Sadly, mostly the answer is no. It’s good to have self awareness.
The last thing I want to do is discourage people from commenting, but at the same time, I don’t think anyone benefits from an editorial approach where I pretend to be oblivious to what people are saying on my own website in the interest of maximizing clicks and traffic.
Would I have triple the number of comments during a given week if I weren’t such an a-shole? Sure, probably. Do I bully readers sometimes? Yes. Do I resort to ad hominem when I don’t have time to type out a 1,000-word response to a commenter I’m irritated with? Yes, frequently. Is all that bad? Yes, definitely.
But (with emphasis), I don’t want to create the impression that all I’m doing here is running a passive income-generation machine for myself, which is what a lot of people would think if I never commented and never exhibited any signs of life back here. I think — I hope — that part of why people come here is that all of you know there’s an actual person behind it, and not just some automaton monetizing your screen time.
Responding to comments is one way to convey that. The Monthly Letters are another — better — way, but not everyone’s going to read 4,000 words of autobiographical socioeconomic commentary every month.
All of that to say, I’m not always right (plainly), and I’m often abrasive, but it is what it is: I’m a human, this is my website, and when someone irritates me, I’m likely to respond as a human might, which is to say in a way that’s not always fair (and sometimes outright unfair), but hey, at least you know I’m here.
Getting irritated about comments shows that you care about what you write and believe you are right which is good. All the more so when there’s an endless flow of bs that gets written just to make a buck. The abrasive tone is appreciated even when disagreeing with you. Also, money is involved here, so it’s better to be honest than nice.
No worries, H. For my part, it doesn’t feel like I’d be a “target” if I posted something less then stellar. It feels more like “I don’t want to embarrass myself in front of one of my favorite professors.” I bet most regulars feel the same. And I, for one, appreciate the very few times you’ve policed the comments.
This remains the ONLY place I read comments, I learn just as much sometimes from your readers as I do from the articles!
This is why we subscribe.
+1!
Great read, thank you!
When I was a kid, and I was losing to my friends at Monopoly, I used to flip over the board and storm out of the room. That should never be our approach to national economic policy.
LOL 100%
Funny, I used to do that too. Ruined the game for everybody!
On the timing of anyone quitting, I’d start the clock once their Certificate of Divestitures are filed, enabling the postponement of capital gains tax.
Great point about Mnuchin. It is a miracle. His wife even made it out of there w/ a money pic. That pic may be viewed as a remnant of the old regime if USD continues to tank.
H-Man, Bessent is serving a master who is chasing what by all accounts will be a Pyrrhic victory. Yes the tariff war may be won, but the price may be a penniless consumer ensconced in poverty. What a beautiful liberation.
I am watching 2 people out of the corner of my eye.
Is Mr. Buffett buying stocks?
Is Mr. Lucky buying 10year or 30year treasuries?
Bessent-looking-for-exit stories really took off with his 4/2 stammering interviews and Sargent Schultz act (who here gets the reference?).
There was chatter he hoped for Powell’s job, but that seems like a frying-pan-to-fire move, 2026 is a long time away, and by then his reputation will be so bad that investors won’t be happy to see him in the seat.
For now, he seems to be designated point man on tariff talks with Asia ex-China?
Clearly the Trump administration and the Republican Congress don’t believe the current level of US debt is a problem, their proposals having at least a $2T hole if not probably more. Trump’s past history was built on leverage. The concept of using other people’s money to make money and having the optionality of not repaying it and walking away is probably his wet dream. Heads I win, tails you lose. His previous administration played with the notion of defaulting during budget impasses. This time, attributed to the mystical Mar a Largo accord, a proposal more suited to bankruptcy is debt substitution.
The tariffs are just a side game to the real goal, have Trump and his 1 percenters become total free riders. Have the consumer class pay for all the benefits this country offers. Consider the options: tariffs paid and absorbed by either the importers/ manufacturers/ distributors thus reducing margins and tanking valuations, or passed along in part or whole to the ultimate consumer raising prices and depending on substitution options and income limitations reducing demand, thus reducing valuations. Tanking all around just to have the rich pay less or no taxes.
Don’t get me started on immigration. A growing population is one of the key variables to having a growing economy. Our demographics are such that immigration is the key to a growing population. Having a couple of hundred rich people pay $5 mill to skip the line is a fricken joke.
Trump is the PT Barnum of our time.
Reread the Weekly. That’s what’s really important. Arguing about tariffs is wasteful sophistry. Watch an original print of “DOA.” We have already been killed and there will be little chance of coming back.
Despite my reply about not commenting when it might not add value:
I bet right now there’s someone writing a ‘theory’ about how Bessent is a Soros mole aimed at destroying Trump’s (beautiful!) agenda. If they’re posting this on Telegram or somewhere even less read, Scott still has a job. If they’re posting this on Truth Social, I give him less than a month until fired.