Muni market cautiously optimistic about Trump Treasury pick

Muni market leaders are reacting favorably to President – elect Trump’s nomination of Scott Bessent as the new Treasury Secretary, a position that will play a vital role in shaping the future of tax policy.  

“Scott Bessent is a great pick because he knows markets,” said Chris Iacovella, president and CEO of the American Securities Association.

“He will vigorously implement the president’s agenda, and he knows how to talk to the bond market. All of those skills will be required to be the secretary of U.S. Treasury at this moment. We look forward to working with him.”  

If confirmed Bessent, founder of the Key Square Group hedge fund, who once advised liberal financier George Soros, will be joined on Trump’s team by Russel Vought who was tapped to retake his position at the head of the Office of Management and Budget. 

Vought was the director of OMB during the last six months of Trump’s first administration after serving as the agency’s deputy director. Vought is an advocate of limiting the independence and power of the Securities and Exchange Commission, an issue that strikes a chord in the municipal bond community. 

Both picks were announced last Friday and will require confirmation in the Senate, unless the Senate agrees to allow recess appointments which would bypass formal confirmation hearings.      

Bessent is on the record as a supporter for extending the tax cut provisions included in the Tax Cuts and Jobs Act that was passed during Trump’s fist administration while adding in some yet to be identified pay-fors. Possibilities include freezing nondefense discretionary spending and cutting subsidies for electric vehicles.  

The muni community remains jittery that the tax-exempt status of municipal bonds could become a fat target as a pay-for and is stepping up lobbying efforts. 

“Secretary Nominee Bessent has a wealth of knowledge and experience working in financial markets that he would certainly bring into the Treasury Department,” said Brian Egan, director of Government Affairs at the National Association of Bond Lawyers.  

“We look forward to working with him and the rest of the incoming administration to ensure our municipal markets continue to serve as an efficient source of financing capital for our communities. We also want to extend our offer to serve as a resource on public finance law to him and his team.”

Tariffs appear to be on the nominee’s table along with a three-arrow economic approach that includes cutting the federal deficit to 3% of gross national product, spurring growth to 3% through deregulation, and increasing domestic oil production by 3 million barrels per day. 

While working for Soros, Bessent made headlines and billions by betting against the British pound and the Japanese yen. Assuming he’s confirmed, Bessent would be the country’s first openly gay Treasury secretary. 

The market responded to the announcements with an early rally and falling Treasury yields to open the holiday-shortened trading week.