Bessent Seeks To Calm Markets As Trade War Sparks Turmoil

Treasury Secretary Scott Bessent on Wednesday sought to calm fears about U.S. government debt, saying a spike in interest rates was no reason for concern about the health of the financial system.

Bessent, speaking on Fox Business after bond yields soared overnight in the wake of President Donald Trump’s sweeping new tariffs taking effect, said the market reaction was an “uncomfortable but normal” side effect of some large financial firms exiting debt-fueled trades.

“There are some very large leveraged players who are experiencing losses,” he said. “I believe there’s nothing systemic about this.”

The Treasury chief’s comments come amid turmoil in the trading of U.S. Treasuries and other lending markets, a situation that investors and policymakers are watching warily. While stock losses are painful and have been getting the most attention, problems in credit markets can have a cascading effect if businesses and households aren’t able to borrow money.

Fears that a recession is coming have reached a fever pitch, with JPMorgan Chase CEO Jamie Dimon calling it a “likely outcome” of the turbulence, and many economists now declaring a shrinking economy their base case for the outlook.

Trump has shown no sign of backing away from his tariff agenda. On Tuesday night at a dinner with House Republicans, the president teased that more tariffs are on the way, this time for pharmaceuticals.

“THIS IS A GREAT TIME TO BUY" U.S. assets, he declared Wednesday on Truth Social.

The jump in bond rates is actually less a cause of concern than if players in the Treasury market aren’t able to trade smoothly and the markets seize up — a situation that occurred in March 2020 at the onset of the pandemic. That year, as uncertainty reigned, there was a rush for cash, so masses of investors were trying to sell Treasuries at once. In some corners of the market, there were massive price differences between how much sellers wanted to get for Treasuries and what buyers were offering to pay — so much so that the Federal Reserve had to intervene.

This time around, Bessent said he anticipates that the markets will calm down once certain leveraged firms “bring their books down.”

His comments appear to be a reference to the so-called basis trade, in which hedge funds profit off the price difference between Treasuries they own and derivatives contracts under which they’ll sell those Treasuries at a future date. Hedge funds also use those Treasuries as collateral to borrow cash, short-term, to maximize their returns.

Market turmoil, particularly a selloff in U.S. government debt, can make this trade no longer feasible. In a blowup, hedge funds dump Treasuries as they scramble to pay back loans, causing Treasury rates to surge. There has been wide speculation that this is a driving factor in the run-up in yields.

Going forward, markets will continue to watch for signs that the administration’s stance is softening.

At a separate appearance, speaking to bank executives in Washington, Bessent on Wednesday said he thought the economy was “in pretty good shape,” though he acknowledged that “there is a little uncertainty.”

He said he would be taking a lead role as the Trump administration embarks on tariff negotiations with countries from around the world. “We have about 70 negotiations lined up,” Bessent said. “I'm not planning on going anywhere for Easter.”

Michael Stratford contributed to this report.