US Treasury Secretary Bessent reportedly marked two homes as his “principal residence” when getting mortgages in 2007. These homes were in New York and Massachusetts. This information, disclosed to Bank of America, drew parallels to President Donald Trump’s claims of “mortgage fraud.” Mortgage experts found no signs of wrongdoing in Bessent’s documents. They noted that issues like this are quite common. Bank of America did not take Bessent’s claims at face value and did not expect him to live in both houses at the same time. Bessent’s lawyer, Alex Spiro, stated that the paperwork was filled out correctly nearly twenty years ago.

The Bloomberg Report

Bloomberg reported on this issue, leading to speculation about why the information was leaked. Some wondered if Bill Pulte, who works with Trump at the Federal Housing Finance Agency, might have shared the details, based on his past dealings with Bessent. However, this is just a theory. The news regarding Treasury Secretary Bessent isn’t just about an old mortgage; it signals growing political tensions. This tension may lead to increased market unpredictability, which we’ve seen with the VIX rising from 16 to 21 in the last two weeks. It would be wise to consider buying near-term VIX call options or options on the SPY to protect against a quick drop caused by news. The hinted conflict between the Treasury, the Federal Housing Finance Agency, and the Federal Reserve puts interest rate policy under scrutiny. The 10-year Treasury yield has been fluctuating between 4.3% and 4.6% this quarter, and this volatility could lead to sudden shifts. It would be more effective to use options on Treasury futures to prepare for a sharp change in yields rather than trying to guess which way they will go.

US Dollar Concerns

Unrest at the Treasury often raises questions about the US dollar, especially with public disputes over fiscal and monetary power. We saw how political disagreements affected the dollar during the debt ceiling debates in 2011 and 2023. With the dollar index (DXY) approaching the 107 mark, we should look into currency derivatives to safeguard against a sudden loss of trust. The mention of the chairman of Fannie Mae and Freddie Mac indicates possible issues in the housing finance market. Any perceived weakness or conflict at the top could widen the spreads on mortgage-backed securities (MBS), which have been sensitive to policy chatter this year. We should keep an eye on credit default swaps related to agency debt and consider reducing MBS exposure until this political noise quiets down. Create your live VT Markets account and start trading now.

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