A White House Bond Market Strategy, Again | American Enterprise Institute

History may not repeat itself, but in American economic policy it sometimes rhymes—kind of. Scott Bessent, Donald Trump’s newly minted Treasury Secretary, has unveiled a strategy eerily reminiscent of the Clinton presidency’s bond-market policy, albeit with crucial differences.

Bessent’s plan focuses on taming 10-year Treasury yields rather than the Federal Reserve’s benchmark short-term rate. His approach combines deficit reduction with increased oil production—a strategy designed to lower borrowing costs through market mechanisms rather than monetary policy. The theory: Reduced government borrowing will shrink bond supply while cheaper energy will temper inflation expectations.

To investment strategist Ed Yarendi, who decades ago coined the term “bond vigilantes” for investors who protest inflationary policies by dumping government securities, this all sounds familiar, as he told clients in a research note this week:

Trump 2.0 is borrowing a page from the Clinton administration’s playbook, specifically the one in which Robert Rubin and James Carville warned Clinton that he had to respect the power of the Bond Vigilantes and maintain fiscal discipline. US Treasury Secretary Scott Bessent yesterday said that he and President Trump are less concerned with the federal funds rate (FFR) and instead are hoping to contain the 10-year Treasury yield. Bessent’s message to the Bond Vigilantes was that he has explained to President Trump that they have the power to stymie his fiscal agenda. That makes sense to us, especially since premature Fed rate cuts helped boost long-term yields, and therefore borrowing costs, over the past six months. The Bond Vigilantes protested the lack of monetary discipline.

Indeed, the echoes of 1992 are striking. Back then, Fed Chairman Alan Greenspan convinced President-elect Bill Clinton to prioritize deficit reduction over his ambitious “Putting People First” spending plans, arguing that high long-term rates reflected market fears about future inflation from all the red ink. The policy shift prompted James Carville, a Clinton adviser, to quip that he wanted to be reincarnated as the bond market because “you can intimidate everyone.” (Or as Clinton described the new emphasis on fiscal prudence, “I hope you’re all aware we’re all Eisenhower Republicans.”)

Yet beneath surface similarities lie stark contrasts. The Clinton administration’s strategy aligned fiscal prudence with Fed policy to placate investors. Bessent’s approach, by contrast, seeks to sidestep the central bank’s influence altogether by directly targeting long-term yields through market mechanisms and confidence building.

Then there’s the inherent contradiction in Trump’s position. While Bessent speaks of deficit reduction, his boss champions tax policies that would expand the federal shortfall by $5 trillion to more than $11 trillion, according to the Committee for a Responsible Federal Budget. This fundamental tension makes the historical parallel more rhetorical than real. Elon Musk’s budget-cutting DOGE has plenty of work to do here to square the circle.

The bond market may still possess the power to intimidate, but Trump’s team appears to be learning the wrong lessons from the 1990s. Where the Clinton administration embraced fiscal orthodoxy, today’s Team Trump seems to be searching for a way around it. Yardeni’s vigilantes, no doubt, are watching closely.