Deutsche Bank: "30-Year U.S. Treasury Yield Could Surge Over 0.5%p if Powell Is Removed"

Trump Pressures Powell to Resign
Inflation Expectations and Risk Premiums Rise

Deutsche Bank, the German investment bank, has projected that if U.S. President Donald Trump removes Jerome Powell, the chair of the Federal Reserve, the yield on 30-year U.S. Treasury bonds could surge by more than 0.5 percentage points.

According to Bloomberg News on July 22, Deutsche Bank strategists Matthew Raskin and Steven Zeng stated in a recent client report, "The removal of Powell would be intended to induce a more accommodative monetary policy, which would increase inflation expectations and risk premiums."

The report explained that after news broke on July 16 that President Trump had pressured Powell to resign, U.S. stocks, the dollar, and long-term U.S. Treasury prices plummeted, while short-term Treasury prices soared. This demonstrates that the possibility of Powell's removal could be a factor driving up long-term Treasury yields.

Based on the volatility observed across the Treasury yield curve over a short period last week, the report analyzed the potential rate changes if Powell were removed and estimated that the 30-year U.S. Treasury yield could jump by about 56 basis points (1bp = 0.01 percentage points). It also noted that, in the short term, expectations for a more accommodative monetary policy could cause short-term Treasury yields to decline. The report added, "The market impact of Powell's removal would be significant, but it is a plausible scenario."

Bloomberg reported that President Trump and White House officials want the Fed to cut rates more quickly than currently anticipated, and that pressure on Powell to resign has intensified in recent weeks.

Since the beginning of this month, the price of 30-year U.S. Treasuries has plunged due to factors such as U.S. inflation and spending outlooks, as well as the possibility of Fed rate cuts. After the release of consumer price data last week, a wave of Treasury selling pushed the 30-year yield above 5% for the first time since June. On July 21, it fluctuated around the 4.95% level.

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