US Treasury Secretary Scott Bessent said he does not want the US to decouple from China. Instead, he wants to reduce risk in the relationship. He also said there is a good chance US GDP growth in 2025 will be 3%. Bessent said the bond market is “so tame” because the government is “sorting the fiscal house”. He also said inflation could move back close to the Federal Reserve’s 2% target by the middle of this year. If inflation moves toward the Fed’s 2% target by summer, traders should expect a change in monetary policy. The January 2026 CPI report showed inflation easing to 2.4%. This supports the view that rate cuts could be coming and helps explain the strong activity in interest rate derivatives. We think trades that can benefit from future rate cuts, such as buying SOFR futures, look more attractive. The bond market is calm, and that creates an opportunity if the fiscal outlook is truly improving. The 10-year Treasury yield has stayed in a tight range near 3.6%. That is very different from the big swings in 2023 and 2024. This may make call options on long-duration bond ETFs more appealing, especially if the market starts to price in rate cuts in the second half of the year. With 2025 GDP growth coming in strong at 3.1%, the risk of a near-term recession looks much lower. That backdrop can make selling out-of-the-money put options on major indexes like the S&P 500 an attractive way to collect premium. Demand for downside protection also appears to be falling as growth stays firm. Steady growth and cooling inflation could keep volatility low. The VIX is trading near 14. That suggests investors feel relatively calm, at levels not seen since before the early-2020s inflation surge. Traders may want strategies that do well when volatility stays low or falls further, such as selling VIX call spreads. The push to de-risk from China, rather than decouple, is still creating clear winners and losers. That argues for selective sector trades instead of broad market bets. Options can be used to gain exposure to US-focused semiconductor and industrial ETFs, which may benefit from reshoring policies.

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