US Treasury Term Structure Simulation
Bessent Supply-Side| Maturity | Baseline | Simulated | Spread (bps) | Term Premium | Issuance Impact |
|---|
| Projection Year | Nominal GDP | Federal Deficit | Net Interest Exp. | Primary Balance | Debt / GDP |
|---|
In his extended Axios interview, Treasury Secretary nominee Scott Bessent outlined a coordinated macroeconomic program built around three core quantitative targets:
- 3% Deficit of GDP: Shrinking the structural federal deficit from ~6.5% down to 3.0% by 2028 through spending controls, tariff inflows, and energy deregulation.
- 3% Real GDP Growth: Unleashing private investment, cutting regulatory drag, and driving private energy production (+3 million barrels/day) to expand the supply curve without triggering demand-pull inflation.
- 3 Million Additional Barrels of Oil/Day: Using cheap, abundant energy as a deflationary anchor that cushions consumer balance sheets and depresses inflation expectations.
Bond Market Impact: Lower deficits reduce the required net issuance of 10-year and 30-year coupon paper, compressing the duration term premium. This avoids the "bond vigilante" sell-off and lowers mortgage and corporate financing rates across the real economy.
The Treasury Term Premium
The yield on a 10-year Treasury is decomposed into expected average short-term interest rates plus a term premium—the extra yield investors demand to risk lockup in fixed-rate debt.
When the Treasury runs a 6.5% peacetime deficit, coupon supply outstrips institutional demand, forcing yields higher. Fiscal consolidation directly compresses this spread.
Bill vs. Coupon Issuance Mix
Treasury Secretaries manage debt duration. Increasing short-term T-bills (to 25-30% of debt) temporarily shields the 10-year bond from indigestion, but increases rollover refinancing risk if rates spike.
Under Scott Bessent's framework, stabilizing long yields is paramount to keep real mortgage rates and corporate debt manageable.
Tariff Revenues vs. Inflation Risk
Targeted tariffs generate $200B-$400B in non-debt revenue, acting as a direct fiscal offset to reduce borrowing needs. However, bond markets price a potential one-time price-level step.
Supply-side deregulation and cheaper domestic energy are utilized as counter-inflationary stabilizers to preserve real purchasing power.