Treasuries slip with Fed's Jerome Powell set to speak on regulation

Jerome Powell

Treasuries were on course to snap a four-day rally as investors await a speech by Federal Reserve Chair Jerome Powell later Tuesday at a conference on bank regulation amid mounting pressure from the US administration on him to step down.

While the Fed is in a blackout period ahead of next week’s meeting outcome, precluding officials from commenting on monetary policy, traders are watching to see if the chairman will take the opportunity to address his future. Powell is scheduled to give welcoming remarks at 8:30 a.m. ET.

US 10-year yields rose one basis point to 4.39%, partially reversing a 10-basis-point slide which began with last week’s weak producer price numbers for June. The longer end lagged the move, resuming a steeping of the yield curve.

President Donald Trump and his administration view Powell as a hurdle to lower borrowing costs as they seek to refinance trillions in upcoming debt. Treasuries fell sharply last week after headlines flashed that the president was planning to fire Powell, a claim quickly denied by Trump. Any hint that Powell intends to resign may trigger a similar reaction and send yields surging as investors reconsider their faith in US institutions.

“With mounting debt-service obligations, there is a growing risk of political influence over monetary policy,” said Nitesh Shah, director of research at WisdomTree. He warned of a scenario reminiscent of the late 1970s, an era marked by institutional weakening and high inflation.

Deutsche Bank AG strategists estimated Powell’s ousting would drive 30-year yields up by more than a half a percentage point, and said the clearest hedge against risks to the Fed’s independence — and a situation in which US government spending consumes monetary policy — are bets on steeper yield curves.

German yields erased an advance to trade steady at 2.61%, while UK peers were two basis points higher at 4.63% at 6:22 a.m. ET.