Bessent's Upcoming GOP Speech Raises Questions About His Credibility in Bond Markets

Treasury Secretary Scott Bessent's efforts to stabilize the bond market are intersecting with a political role, as he prepares to deliver a speech at the Republican convention in Dallas on Wednesday. This event marks the first time in 50 years that a sitting Treasury secretary has spoken at a national political convention. The GOP's midterm convention in Dallas is also the first of its kind for the party. Historically, Treasury secretaries have avoided speaking at such events due to concerns about maintaining market credibility, as noted by Stephen Myrow, managing partner of Beacon Policy Advisors and a former advisor to Treasury Secretary Hank Paulson. Myrow stated, "Treasury generally doesn't have a tremendous power but for the market credibility of the Treasury secretary." Bessent's speech will occur just before former President Trump takes the stage, following U.S. House candidates from Arizona and Michigan. The Treasury Department announced plans to buy back up to $6 billion in long-term Treasury debt this week, with a minimum of $4 billion in operations planned for later this year. This buyback program, initiated in 2024, aims to address issues related to thin trading in some long-term debt. Bessent described the market conditions as a "fever that was building" and indicated that he acted to mitigate that situation. Following his announcement of enhanced buybacks on August 19, Treasury yields initially fell, but they rose again after the department revealed the anticipated size of the buybacks. As of Wednesday afternoon, the yield on the 10-year Treasury note reached 4.84%, the highest during Trump's term. Higher yields can benefit savers but may increase borrowing costs for mortgages and auto loans. The Treasury secretary's role in managing the government debt market is particularly sensitive, as they have historically played a crucial role in stabilizing the economy during crises. While all Cabinet members engage in political activities to some extent, some Treasury secretaries have avoided overt political involvement. Former Treasury Secretary Janet Yellen emphasized the importance of adhering to the Hatch Act, which limits political activities for executive branch employees. Although political engagement is permissible under certain conditions, Yellen noted that other Biden appointees have participated in political events while observing these rules. Previous Treasury secretaries have participated in political conventions, such as James Baker in 1988 and Robert Rubin in 2000. Bessent has actively used his public profile to criticize the administration's political opponents, stating, "I say sometimes I feel like an emergency room doctor. The Biden economy just was like American people got hit by a truck." He also mentioned that the bottom 25% of earners have seen greater wage gains than the top 25%. The Treasury Department did not respond to inquiries regarding the political nature of Bessent's upcoming speech. Bessent, originally from South Carolina, has received suggestions to run for the Senate seat previously held by Lindsey Graham but indicated he is focused on his current responsibilities. While Bessent's oratory skills have been described as awkward, he has navigated a challenging administration where loyalty and defense of policies are constantly evaluated. Myrow remarked, "We don't have a typical, traditional president. So we wouldn't expect to have a traditional Treasury secretary." However, if the markets perceive Bessent as prioritizing politics over credibility, it could lead to diminishing effectiveness in his role, as Myrow cautioned that losing market credibility would undermine the value he provides to Trump.