U.S. Treasury Secretary Scott Bescent said Wednesday that the Trump administration is aiming to reduce the economy's borrowing costs by lowering Treasury bond yields for 10 years.
“He and I are focusing on the 10-year Treasury Department,” Bescent told Fox Business when asked about plans to lower interest rates. “He's not asking the Fed to lower interest rates,” Bescent added.
The so-called risk-free rate of 10 years yield affects most long-term loans in the economy, including mortgages and business loans. Therefore, a 10-year decline in yields promotes borrowing and investment, increasing risk-taking in the economy and financial markets.
Therefore, softening of 10-year yields is usually considered bullish for risky assets, including Bitcoin (BTC). Trump plans to lower yields by controlling inflation. Inflation could reduce BTC signs and fiscal deficits. This can be a headwind for risky assets.
“Their energy components are one of the most reliable indicators of long-term inflation expectations,” Bescent said, reiterating that increasing the energy supply will help reduce inflation.
Other matters become equal, and as inflation drops, the Federal Reserve can continue its reduction rate, but this remains in a restrictive area. It could increase bullish momentum in risky assets. Since September, the Fed has reduced its benchmark borrowing costs by 100 basis points to the 4.25%-4.5% range.
Meanwhile, Bessent's strategy of injecting downward pressure into 10-year yields includes correcting the enormous budget deficit through reduced fiscal spending. A reduction in the deficit means a decrease in bond supply, a rise in bond prices, and a lower yield.
That said, the Biden administration's unpredictable fiscal spending compensated for rising Fed rates and grease in financial markets. Therefore, reducing spending can destabilize risk assets, including cryptocurrencies.
“Of course, getting a 10-year yield on a downward path means a move to improve US financial position and inflation. So far, he has partner MUSK, USAID, federal We cut our employees, as well as our federal government programs. That kind of thing doesn't really damage the surface,” noted Sheridan, chief currency analyst in Asia-Pacific.
“Most of the US spending is on healthcare, social security and defense. Does Trump give the pain that his focus seems to imply?
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According to Bessent, 10-year yields fell 38 basis points to 4.42%, increasing market prices for lower energy prices and non-inflatable growth.
However, ING analysts have not seen a sustained drop.
“We argue that there is no large space on the downside due to a 10-year yield. There is just under 4% effective flooring that can be determinable from the funding rate strip. Of course, that floor. It's lower, but there's a better reason than the Treasury yield for 10 years, and better than the Treasury yield for 10 years.
ING sees a big driver to reduce 10 years of harvest, except for government efficiency created to reduce wasteful fiscal spending and federal regulations, or the huge success of Doge. He added that it is difficult.
