Can Scott Bessent Avoid A 'Liz Truss' Moment?

Treasury Secretary Yellen’s ‘Secretive Liquidity Easing’ Poses A Big Risk

New nominee US Treasury Secretary Scott Bessent has been set a high bar to jump by out-going Secretary Janet Yellen. His ‘Triple-3’ policy hint to deal with escalating public debt reminds us of similar policies briefly attempted by short-lived British Prime Minister Liz Truss before the markets rejected her ‘pro-growth’ Budget (and her) in September 2022. British gilt-edged securities suffered a full-frontal attack by distressed bond investors, but shock waves were felt Worldwide.

Secretary Bessent will have to quickly address the huge skew in the Treasury issuance calendar towards bills and shorter-dated coupons left behind by Yellen. This shift, or what we have flippantly dubbed ‘Not-YCC, YCC’ (Yield Curve Control) is a disguised easing of Global Liquidity conditions. It extends beyond US Fed actions and it has already hugely distorted the yield structure and bond pricing, potentially reducing US 10-year Treasury yields by circa 100bp. This is a serious accusation, given the central role played by Treasury bond prices as a benchmark for other securities and financial contracts.