Treasury Secretary Scott Bessent played down a selloff in US Treasuries, saying that there was nothing systemic at play, and also served warning against China not to attempt to devalue its exchange rate in retaliation for American tariff hikes.
“There’s one of these deleveraging convulsions that’s going on right now in the markets,” Bessent said on Fox Business, adding that he’d witnessed those very often in his hedge-fund career. “It’s in the fixed-income market. There are some very large leverage players who are experiencing losses, that are having to deleverage.”
Longer-dated Treasuries have borne the brunt of declines in the market for US government bonds in recent days, sliding even amidst a decline in stocks — going against their typical safe-haven role. Thirty-year US bond yields have surged by about half a percentage point so far this week.
“I believe that there is nothing systemic about this — I think that it is an uncomfortable but normal deleveraging that’s going on in the bond market,” Bessent said.
As leverage in the $29 trillion Treasuries market comes down, “the market will calm down,” Bessent said. For now, risk managers are “tapping people on the shoulders, telling them to bring their books down — which is what happens every couple years as leverage builds up.”
China Warning
The Treasury secretary’s read on the market contrasted with the view of Deutsche Bank AG strategist George Saravelos, who warned that the Federal Reserve may need to step in to stabilize Treasuries. That’s what happened in March 2020, when the Covid crisis hit and trading froze up, triggering massive purchases by the US central bank.
Bessent was speaking shortly after China announced its retaliation against the latest US tariff hikes on Chinese products. Beijing raised its own levies on American imports to 84%, after President Donald Trump’s “reciprocal” duties added a 104% surtax on Chinese goods.
“It’s unfortunate that the Chinese actually don’t want to come and negotiate, because they are the worst offenders in the international trading system,” Bessent said. What Beijing “should not do is try to devalue their way out of this,” he said.
China’s central bank on Wednesday weakened the yuan’s daily reference rate for a fifth straight session. The move came after the offshore yuan on Tuesday slumped to the weakest level since the creation of the market in 2010.
Any devaluation campaign would spur the rest of the world to “keep raising their tariffs to offset the devaluation,” Bessent said.
He also highlighted that many countries surrounding China are now seeking trade negotiations with Washington in the wake of the reciprocal tariff action.
In addition to talks with Japan that are set to kick off “soon,” Bessent said that a Vietnamese delegation is coming to Washington Wednesday. He also highlighted South Korea and India as seeking talks.
The Treasury chief also noted that export capital controls are under consideration at the White House. It will be up to Trump to decide on a “black list of things that US — whether pension funds, endowments, investors — should not be investing in to fund the Chinese military machine.”
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