Treasury Secretary Bessent Sits for a Short Video Interview on the GSEs

Bessent Will Be Deliberate and Cautious to Make Sure He Doesn't Blow Out the Mortgage Credit Spread (as He Should Be)

Today, in a video interview of Treasury Secretary Bessent by Bloomberg reporter Saleha Mohsin, Bessent stated that tax policy is his current priority and, after that has been sorted out, he will focus on a safe and sound GSE conservatorship release.

Bessent stated that the most important metric he will focus on with regard to any GSE conservatorship release is its effect on mortgage rates, and he would look for any “study or hint” that would indicate that interest rates would rise in connection with a GSE conservatorship release.

Of course, the terms imposed on the GSEs in the GSE conservatorship release, relating principally to GSE capital levels, will dictate what effect GSE conservatorship release will have directly on the GSE MBS market, and indirectly on national mortgage rates.

So for GSE investors, the good news is that GSE conservatorship release is definitely on Treasury Secretary Bessent’s radar.

The caveat to this good news is that he will not focus on this as soon as some GSE investors might wish.

The question Bessent raises for GSE investors is what standard of safety and soundness will he require of the GSEs in the conservatorship release.

As I discuss below the paywall, essentially what Bessent does not want to do is to blow out the credit spread between the 10 year Treasury bond (“Treasuries”) and 30 year fixed mortgages (“ mortgage credit spread”).

He is taking an academic approach to analyzing this concern. Bessent will be offered up pure advocacy pieces by mortgage professional associations incentivized to obtain a Treasury guarantee of GSE MBS. Bessent will see right through this biased advocacy.

It is not clear to me that Bessent will find a definitive academic study to answer his question.