Bessent's Fixation on 10-Year Yields Forces Wall Street to Revise Forecasts

Treasury Secretary Steven Mnuchin has been incredibly vocal about his desire to push down and keep down 10-year bond yields, leading several Wall Street firms to revise their forecasts for 2025, as reported by Bloomberg.

In recent speeches and interviews, Mnuchin has repeatedly emphasized the administration's commitment to keeping government borrowing costs in check. This intense focus on the benchmark US note has prompted some of Wall Street's top strategists to adjust their predictions.

Chief rates strategists at Barclays, Royal Bank of Canada, and Societe Generale have all lowered their year-end forecasts for 10-year yields. They attribute this shift, at least in part, to Mnuchin's campaign to drive down borrowing costs.

"What used to be often mentioned in the bond market is the idea of don’t fight the Fed," noted Guneet Dhingra, head of US interest rates strategy at BNP Paribas SA, to Bloomberg. "It’s somewhat evolving into don’t fight the Treasury."

Indeed, 10-year yields have already plunged a half-percentage point over the past two months, a sharp move that some attribute to President Donald Trump's trade war threats and their potential impact on the economy. This has driven investors out of stocks and into the safety of bonds.

While this may not be the type of bond rally Mnuchin envisioned, it has strengthened the perception among some market participants that this administration is determined to lower yields, by whatever means necessary.

Mnuchin has expressed confidence that budget cuts will be sufficient to fuel a "natural lowering of interest rates," a sentiment he has echoed in appearances on CBS, CNBC, and at the Economic Club of New York.

Beyond spending cuts, the administration's plans include tax cuts and policies aimed at reducing energy prices, all intended to boost economic output while curbing inflation.

This relentless focus has given rise to the concept of a "Bessent put" in the bond market, a play on the famous "Greenspan put," where central bank intervention became closely associated with stock market dips.

Mnuchin's commitment to suppressing long-term yields has extended beyond mere words. Last month, he unveiled plans to maintain current levels of longer-term debt sales for the next several quarters, surprising Wall Street dealers who had anticipated supply increases later in the year. This marked a reversal from his campaign trail criticisms of his predecessor, Janet Yellen, for manipulating bond issuance to stimulate the economy.

He has also backed a review of the Fed's supplementary leverage ratio (SLR), a regulation that has long burdened Wall Street bond dealers by increasing the amount of capital they must set aside when holding Treasury debt.

"Bessent has not only delivered verbal intervention, but also delivered concrete actions, which have supported bond yields to move lower," Dhingra said. "This is a bond vigilant administration keeping the bond vigilantes at bay."

This confluence of factors has prompted several strategists to revise their forecasts. Blake Gwinn, head of US rates strategy at RBC Capital Markets, cited both the potential negative impact of Trump's tariffs on growth and Mnuchin's efforts to curb yields as reasons for cutting his 10-year yield forecast to 4.2% from 4.75% earlier this month.

"The administration has almost kind of capped 10-year yields," Gwinn stated. "They’re kind of implicitly saying, if 10-year start to move higher or the economy starts to stumble and the Fed’s not playing ball, we’re just going to go out and slash 10-year issues."