US stock and bond prices moved higher on 25 November after president-elect Donald Trump revealed his pick for Treasury secretary was hedge fund manager Scott Bessent.

The reaction was partly relief that Trump opted for a market savvy individual and a ‘safe pair of hands’ rather than someone with little capital markets experience to implement his economic agenda.

Secondly, Bessent is seen as pragmatic when it comes to tariffs. In a letter to investors earlier in 2024 Bessent commented: ‘the tariff gun will always be loaded and on the table but rarely discharged’.

Hopes Bessent would soften the new administration’s stance on tariffs were somewhat undermined by subsequent pronouncements from Trump that he would introduce sweeping tariffs on China, Canada and Mexico from day one of his presidency. How much of this is a negotiating tactic rather than a realistic prospect – investors are left to guess.

There was general support for Bessent’s appointment from the investment industry with Daniel Loeb and Bill Ackman applauding the nomination while Kyle Bass described it on social media as ‘the single best choice.’

Treasury yields spiked higher following Trump’s election victory as investors priced in stickier inflation and potentially higher national debts. The 10-year treasury yield jumped from 4.2% to 4.5% following the election. It eased on news of Bessent’s appointment and, as we write, there has been a limited reaction to Trump’s subsequent more fiery rhetoric.

Bessent honed his investing skills working with billionaire George Soros in the 1990s and became chief investment officer in 2011 overseeing successful bets against the Japanese yen.

In 2015 Bessent launched his own firm Key Square Capital Management which specialises in global macro investing. This involves analysing economic data and the geopolitical landscape to make bets on big market moves.

Following his appointment Bessent says his priority will be delivering on Trump’s planed tax cuts as well as enacting tariffs and cutting spending.

Bessent has advised the Trump team to pursue a ‘three arrows’ economic policy which includes reducing the budget deficit to 3% by 2028, speeding up economic growth through deregulation and adding three million barrels of oil a day to shore up energy security.

He has also advocated extending the 2017 tax cuts and Jobs Act, paid for by reducing expenditures elsewhere or increasing revenue.

One area where Bessent will have oversight is in the issuance of treasuries. The federal government has nearly $28 trillion worth outstanding, making it one of the world’s biggest bond markets.

The hedge fund manager has been critical of current Treasury secretary Janet Yellen for issuing too much short-dated debt at a time when shorter-term interest rates were higher than long-term interest rates. 

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