Donald Trump's words war with Jay Powell is likely to make sustainable damage to the Treasury market of 29 TN, even after the American president supported his apparent threat to dismiss the president of the Federal Reserve, have warned major investors.
Trump this week said he had “no intention” to dismiss Powell, but reiterated his complaint that the Nourished was slow to reduce loan costs. Powell's mandate as president who ended in May 2026, the episode fueled the fears of investors concerning the independence of the Fed and the way of American monetary policy.
“Once you said, you said, and even if you can recover it, in the background of the minds of people, what is the next surprise?” said Andrew Chorlton, investment director for fixed income securities at M&G Investments. “If your level of comfort around the independence of the Fed … is being reduced, you expect to pay more for that.”
Increasing concerns about the independence of the central bank – the president increasing his calls for lower rates in recent weeks and claiming that the end of Powell's mandate “cannot come quickly enough” – fueled a sale in Treasury. This took the yield of the Treasury at 10 years old above 4.4% this week, heading for levels reached in the tumult of the market earlier this month.
There is a persistent fear on the market, say that major treasure investors, on the independence of the Fed, including if the president will make an unorthodox choice for the replacement of the chair.
This created a so-called risk premium in the yields of the Treasury, said investors, keeping them higher than they would be otherwise. Even after recovery, the 10 -year yields were 4.34% on Thursday.
These premium investors are paid to have treasury bills due to their higher risk perceived that safe German bunds are approximately 1.9 percentage points, compared to less than 1.3 percentage points earlier this month.
The Fed independence debate has added to the concerns that have knocked out the prices of treasury bills in recent weeks, including concerns about the government's loan and the repercussions of Trump's trade war, investors already calling into question the status of paradise in the American bond market.
William Campbell, a portfolio manager at Doubleline Capital, said that the government “exaggerated” in the central bank was likely to “erode it” a fundamental pillar of the feeling of investors and made parallels with crises in emerging markets, referring to the experience of Turkey with unconventional monetary policy a few years ago.
“The discourse on the dismissal of Powell is only the demand for the market is more risk premium,” he said. “Look at what happened to Turkey.”
Tobias Adrian, the highest official of the IMF markets, told Financial Times on Monday that “the history, in terms of stability, is much stronger when central banks are independent”.
Although he refused to comment directly on Trump's recent remarks on Powell, he added: “Independence ensures stability and undergoing independence which, in our view, would create uncertainty.”
The risk premium for treasury bills is generally very low because it is the deepest and most liquid bond market in the world and used as the world's main reserve.
Robert TIPP, responsible for global bonds at PGIM FIXED RENCE, said that the volatility of policies, including pressure on the central bank, weighed on the prices of American assets on the financial markets.
“As we have seen in the currency movements, as we have seen in relative bond movements, as we have seen on the relative stock market (MOVS). It is in balance.”
The concern of investors is that Trump manages to move American monetary policy to be sweeter on inflation, in order to obtain its objective of lower interest rates. The long -standing bonds would be particularly damaged if the market felt such a change.
Even if Trump fell from his threats to dismiss Powell, analysts suggested that the president could continue to hinder independence nourished. He may soon name a successor, creating a “ghost chair” that influences the expectations of monetary policy while Powell is still in office, Matthew Raskin, head of American tariffs at Deutsche Bank, said.
Speculations have already started among analysts and rate investors on which could be chosen, with Kevin Warsh, the former member of the Fed board of directors who was considered For the role of secretary of the Treasury, being considered as a possible replacement. Warsh was a fierce critic of the Fed policies last year, but remained largely silent on recent decisions.
“If Warsh wants work, however, he will have to compromise his more traditional republican monetitarian opinions and to engage his allegiance to Trump and at low interest rates,” wrote Capital Economics in a note before the president returns. They also appointed Kevin Hassett, director of the Trump National Economic Council, like another potential replacement.
Campbell de Doubleline said that the appointment of the next president of the Fed was “heavy risk”, in particular at a time when global investors “began to question the fundamental foundations of their investments”.
Placement managers have warned that the signaling of an unconventional replacement – or throwing the ground for a change in Fed policy – could cause a drop in additional bond prices compared to other bond markets.
“In this environment, it is certainly possible and it is very difficult for someone to lie on the tracks in front of this locomotive if it seems that it happens,” said Tipp de Pgim. “We are definitely vulnerable to this (risk).”
Additional reports from Claire Jones in Washington
