Premature To Say Anything
Recently, while speaking at an event held by the Economic Club of Chicago, US Federal Reserve Chair Jerome Powell commented on the state of the global bond markets, specifically with regard to the volatility faced by US Treasury bonds.
Powell was speaking to former RBI governor and faculty at the University of Chicago’s Booth School of Business, Raghuram Rajan.
While speaking on the rising yields on US Treasury bonds, Powell said, “I’ve had a lot of experience with significant moves, for example, in the bond market, where there’s a narrative that people land on, and then two months later, you look back and go, that was completely wrong. So I think it’s very premature to say exactly what’s going on. Clearly, there’s some de-levering going on among hedge funds in levered trades and things like that.”
‘Can’t be Definitive’
Furthermore, Powell called for caution before jumping to any conclusion.
The Fed chief further added, “It’s also, again, it’s the markets processing historically unique developments with great uncertainty. And I think you’ll see, you’ll probably see continued volatility, but I wouldn’t try to be definitive about exactly what’s causing that. I would just say markets are orderly, and they’re functioning kind of as you would expect them to in this time of high uncertainty.”
Also Read: Federal Reserve Chair Jerome Powell says Trump tariffs likely to raise inflation and slow US economic growth
Reason For Uncertainty
This comes at a time when the yield on the US 10-year treasury bond rose to 4.314%. In addition, the yield on the US 5-year treasury bond has also risen to 3.950%.
Usually, at the time of turbulence, investors tend to leave secondary markets, flocking to safer avenues like government bonds. In this, the US government bonds, along with the US dollar, have been deemed a safe investment instrument.
This time around, the picture looks a little different, as concerns over recession in the US economy and the impact of Trump’s tariffs, in addition to the US’s rising debt, have made investors look elsewhere.
The US dollar’s value, according to the US dollar index, is the value of the world’s reserve currency, which dipped to 99.57.
Other government bonds, like the German bonds, have attained a lot of traction, as Germany, given its previous aversion to debt, has greater fiscal room.
According to a CNBC report, German bonds are being positioned as an alternative ‘safe haven’ in light of the recent developments.
In addition to the bond market, Jerome Powell also commented on the impact of Trump’s tariffs on inflation in the US. According to Powell, the level of the tariff increases announced is significantly larger than anticipated. This, in turn, could not just have an impact on inflation but also on the US job market. According to Powell, price stability is essential for a strong job market.
