Treasury Secretary Bessent returned to Washington to testify on Capitol Hill. His remarks covered the China deal and economic outlook, suggesting capital investments will rise with the new tax and spending bill.

Bessent critiqued the 24-hour perspective on the bond market, particularly concerning 10-year yields. Currently, the yield on these notes is 4.442%, down by 3.2 basis points compared to an end-of-year level of 4.573%.

US Treasury Auction

The US Treasury is set to auction 10-year notes at 1 PM ET, with attention on the current yield. Additionally, an interview with Commerce Secretary Howard Lutnick is scheduled to air on CNBC.

Bessent’s testimony in Washington centred on recent fiscal measures and their projected impact on capital expenditure. According to him, the newly introduced tax and spending policy should, over time, prompt businesses to invest more heavily in physical assets—a move typically associated with improving productivity and longer-term economic growth. By drawing attention to this connection, he made clear that the government expects a real-world response from private sector companies, not just short-term market reactions.

He also raised a pointed criticism of how market participants focus too narrowly on short-period movements in Treasury yields, particularly the 10-year note. The yield at the time sat at 4.442%, a decrease of 3.2 basis points from the close of the previous year. In putting emphasis on this decline, he implied that looking day to day obscures broader signals about economic demand and monetary expectations. It was a direct challenge to those interpreting price action in a vacuum of context.

The Treasury’s plan to auction 10-year notes later in the day will likely serve as a moment of calibration. Attention will fall not only on the final stop-out yield but also on bid-to-cover ratios and indirect bidder participation—all measures of demand. Traders should anticipate increased positioning around that time, particularly considering the softening yield environment. The last few weeks have already seen some flattening across duration.

Lutnick’s Interview and Trade Insights

Separately, Lutnick’s upcoming interview is expected to give further colour on trade flows and manufacturing sectors. The conversation, given its platform and timing, may ripple through rate expectations depending on his tone toward industrial demand and export levels. Paying close attention to his phrasing around supply chain constraints or shifts in global sourcing would not be wasted effort.

For those pricing interest rate futures or trading options on duration spreads, the alignment between fiscal stimulus and forward guidance from such officials requires re-visiting model assumptions. With the shift in yields seeming to capture a reassessment of long-term inflation expectations, momentum in the futures curve could adjust and potentially rerate fixed-income vol surfaces through the week.

We must adapt quickly. The combination of scheduled Treasury issuance and coordinated public remarks creates a feedback loop that does not take long to reflect in volatilities. If liquidity pockets thin, bid-ask spreads on longer tenor swaps or options could widen briefly before recalibrating to higher clearing volumes. The current setup rewards speed, but not at the expense of context.

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