In recent days, there has been a significant rise in US Treasury yields. This has raised concerns and assumptions about potential actions from the Federal Reserve to stabilize the market.
Rise of Bond Yields
Last week, the 30-year Treasury yield briefly hit 5.02%, marking its highest level since November 2023. Investors have started dumping long-term US debt, reacting to Donald Trump’s trade tariffs and rising fears about the safety of US assets.
Federal Reserve Response
George Saravelos, global head of FX strategy at Deutsche Bank, stated that if the situation in the US Treasury market does not improve, the Fed will have no choice but to conduct emergency purchases of bonds to stabilize the market. He referred to this as a 'circuit breaker.' The last time such measures were implemented was in 2020 in response to the COVID-19 financial crisis.
Economic Situation
Economists highlight that the Fed will find it difficult to cut interest rates amid the current inflation. The inflation gauge hit 2.8% in February, exceeding the target of 2%. Michael Gapen, chief US economist at Morgan Stanley, indicated that the Fed is unlikely to cut rates anytime soon, potentially worsening the situation in financial markets.
The rise in bond yields and market instability is driven by both internal and external factors. To support financial stability, the Federal Reserve may need to consider emergency measures.
