U.S. Treasury Yields Rise Amid Speculation on Federal Reserve Leadership

On February 2, U.S. Treasury yields experienced a slight increase across most maturities, driven by heightened demand for safe-haven assets following a sharp decline in precious metals. According to Jin10, the nomination of Waller by U.S. President Donald Trump as the new Federal Reserve Chair last week has led the currency markets to speculate that the Federal Reserve might cut interest rates three times this year, boosting Treasury prices. Jefferies International's Chief Economist Mohit Kumar commented on Waller's hawkish stance, noting that while Waller has been critical of the Federal Reserve's balance sheet expansion, it is difficult to logically conclude that his hawkish views are the reason for Trump's favor. The market is also weighing potential adjustments Waller might make to the balance sheet, with speculation that he could swiftly initiate a reduction. Guy Stear, Head of Developed Markets Strategy at Amundi, stated that the market anticipates lower short-term rates alongside Federal Reserve control over the balance sheet, which could steepen the yield curve. The concern lies in the possibility that if long-term rates begin to rise during the curve steepening, the Federal Reserve might face pressure to expand the balance sheet.