The hawk Fed Chair who broke the bond market?
Source: Fortune ·
Kevin Warsh may be the most hawkish Fed chair since Paul Volcker. September's Treasury rout shows what that costs.
From the source
Kevin Warsh may be the most hawkish Federal Reserve chair since Paul Volcker. That’s a compliment in some circles. It’s also a warning. Volcker beat inflation, but he broke things on the way, and the bond market is now finding out what Warsh might break. Thirty-year Treasury yields have climbed to their highest level since 2002. In September alone, the 10-year yield jumped more than half a percentage point, to about 5.3%. It was the worst month for U.S. government bonds in four years. The usual explanations don’t hold up for these movements. Technical market dynamics that impact demand may include, for example, a modest slackening in the so-called basis trade (with hedge funds buying fewer Treasurys in support of leveraged bets). Some observers point to an assumed increase in the “term premium” – the extra yield supposedly needed to offset duration risk for holders of longer-term bonds. Other theories are even more esoteric and/or difficult to measure. There might be an “absorption…