Bessent and Warsh to Guide Markets as US Bond Yields Continue to Surge

The US bond market is showing signs of relief as a pivotal week begins, with key remarks from Treasury Secretary Scott Bessent and Federal Reserve Chair Kevin Warsh under scrutiny. Investors are positioning themselves ahead of these comments, which have enough weight to move yields by significant increments. The 10-year Treasury yield has surged nearly 70 basis points since the Iran war, reaching its highest levels since 2007.

The Treasury Department recently increased the size of its long-term debt buyback program, lifting the maximum per-operation amount from $2 billion to at least $4 billion. This move was intended to reduce supply and push prices up, but it only had a brief effect on yields. The 10-year yield dropped by nine basis points after the announcement, but quickly rebounded to its previous levels.

Treasury Secretary Bessent acknowledged that current yield levels are misaligned with what he sees as equilibrium, hinting that the buyback program could expand further if markets don't settle on their own. Meanwhile, Federal Reserve Chair Kevin Warsh is expected to speak at the Jackson Hole economic symposium, where he may signal any accommodation in response to rising yields or reassert Fed independence from fiscal pressures.

Higher yields are affecting various sectors, including equities and housing. For equities, higher yields raise the discount rate applied to future corporate earnings, compressing valuations for growth stocks. For housing, mortgage rates near 6.75% are pricing out potential buyers, weighing on transaction volume and prices.