Treasury Secretary Bessent returned to Washington to testify on Capitol Hill. He discussed the deal with China and the economic outlook, indicating that capital investments will increase due to the new tax and spending bill. Bessent criticized the short-term view of the bond market, especially the 10-year yields. Right now, the yield on these notes is 4.442%, which is down by 3.2 basis points from last year’s close of 4.573%. The US Treasury will auction 10-year notes at 1 PM ET, drawing attention to the current yield. An interview with Commerce Secretary Howard Lutnick is also set to air on CNBC. In his testimony, Bessent focused on recent financial measures and how they could affect capital spending. He believes the new tax and spending policy will encourage businesses to invest more in physical assets over time. This investment is linked to improved productivity and long-term economic growth. He emphasized that the government expects a real response from private companies, not just immediate market reactions. Bessent also challenged how market participants fixate on short-term changes in Treasury yields, particularly the 10-year note. At that moment, the yield was 4.442%, a drop of 3.2 basis points from the close of the previous year. He pointed out that focusing on daily changes overlooks broader signals about economic demand and monetary expectations. This was a direct challenge to those reading price movements without context. Later in the day, the Treasury will auction 10-year notes, offering a chance for market calibration. Traders will watch not just the final yield but also the bid-to-cover ratios and indirect bidder participation—indicators of demand. Increased trading activity is expected, particularly given the softening yields over recent weeks. Meanwhile, Lutnick’s upcoming interview is anticipated to shed light on trade flows and manufacturing sectors. The discussion could influence rate expectations based on his views on industrial demand and export levels. It’s important to pay attention to how he discusses supply chain issues and changes in global sourcing. For those trading interest rate futures or options on duration spreads, the interplay between fiscal stimulus and official forward guidance may require revisiting model assumptions. Recent shifts in yields suggest a reassessment of long-term inflation expectations, which could adjust momentum in futures and affect the fixed-income volatility landscape this week. Adapting quickly is crucial. The combination of scheduled Treasury issuance and public comments creates a feedback loop that can quickly influence volatility. If liquidity tightens, bid-ask spreads on longer tenor swaps or options may widen temporarily before adjusting to higher trading volumes. The current market environment rewards fast action, but it’s essential to maintain context.

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