Trump's Unpredictability and Bessent-Warsh Discord: U.S. Treasury Yields Walk a Minefield [Weekend Money]

Structural Instability from Moderate Inflation and Interest Rates

Trump's Volatility Sends Oil Prices Surging Again

Federal Reserve Independence Under Threat

As global government bond yields are reaching their highest levels in decades, analysts say that discord among the "big three power players" leading the U.S. economy and financial markets has emerged as a new negative factor behind the sharp rise in government bond yields.

U.S. President Donald Trump.

According to iM Investment & Securities on September 6, the yields on 10-year and 30-year U.S. Treasury bonds have recently climbed to around 4.8% and 5.3%, respectively, approaching the psychological thresholds of 5.0% and 5.5%. Japan's 10-year yield also surpassed 3.0%, marking its highest level since 1996, while long-term rates in major countries such as the UK and Germany have soared to levels seen during the past financial crisis.

iM Investment & Securities identified the fundamental reasons for the spike in government bond yields as the structural paradigm of "major borrowing risks" arising from welfare expansion and artificial intelligence (AI) hegemonic competition, along with the persistence of "moderate inflation and moderate interest rates." On top of this structural instability, short-term negative factors have been added, namely the discord in policies among President Trump, Treasury Secretary Scott Bessent, and Federal Reserve Chairman Kevin Warsh.

Treasury Secretary Scott Bessent has recently been taking active measures to stabilize long-term government bond yields. At the beginning of last month, he intervened in the market by strengthening coordination with Japan in the foreign exchange market, increasing the scale of buybacks, and conducting a "Treasury Twist"—selling short-term government bonds to purchase long-term ones to lower long-term yields.

In contrast, Federal Reserve Chairman Kevin Warsh, after suggesting in his Jackson Hole speech the possibility of further interest rate hikes to achieve price stability, made remarks that essentially ruled out the Federal Reserve's purchase of government bonds (quantitative easing)—the last resort for stabilizing yields. These statements poured cold water on Secretary Bessent's efforts to stabilize the market, further fueling market anxiety.

President Donald Trump's unpredictability and overreach have also added to the negatives. President Trump openly demanded a rate cut from Chairman Warsh, reviving debates about the independence of the Federal Reserve, and abruptly reversed course by resuming military strikes against Iran.

The Trump administration's policy to resolve the Iran issue through strong economic sanctions was overturned within a week. As a result, international crude oil prices, which had stabilized in the low $80 per barrel range, jumped back above $90 a barrel, stoking renewed fears of inflation.

Park Sanghyun, a researcher at iM Investment & Securities, said, "Given that the demand for funds from governments and corporations is unlikely to decrease, we must wait for one potential mine to be cleared at a time through economic indicators or events." He added, "Although a rate freeze is expected at the September FOMC, Chairman Warsh's remarks and the federal fiscal deficit will be key variables determining the direction of interest rates." He also noted, "It is easy for government bond yields to rise, but they are unlikely to stabilize downward quickly," and pointed out that "a sharp drop in oil prices may be necessary for government bond yields to find short-term stability."

This content was produced with the assistance of AI translation services.