Banking giant says Fed may have to intervene if bond market turmoil continues
A fire sale in US Treasuries gathered pace overnight, sending their yields soaring and likely pushing mortgage rates higher as investors sounded the alarm on President Trump’s tariff war.
Typically viewed as a safe haven for investors when stocks slide, 10- and 30-year Treasuries are now seeing an exodus amid Trump’s dramatic escalation of punitive trade measures against China on Tuesday night.
Surging yields on those Treasuries, which heavily influence the direction of borrowing costs across the US, look set to drive mortgage rates upwards even as a stock market plunge continues on Wall Street.
Ten-year Treasuries were up 13 basis points on Wednesday, while their 30-year counterparts jumped by even more and are now around 60 points higher than their lowest point last week.
That means 30-year fixed mortgage rates, which began ticking upwards in recent weeks after dipping during the opening months of the year, are likely to shoot back towards – and possibly even past – the 7% mark.
Will the Fed be forced to intervene as financial markets teeter?
The largest selloff of Treasuries since the onset of the COVID-19 pandemic in 2020 sparked fears of a market meltdown and speculation that the Federal Reserve could be forced to step in.
“If recent disruption in the US Treasury market continues we see no other option for the Fed but to step in with emergency purchases of US Treasuries to stabilize the bond market,” George Saravelos, Deutsche Bank’s global head of FX strategy wrote in a note on Wednesday morning.
Traders expect the Federal Reserve to cut interest rates five times in 2025, with increasing odds of an emergency cut due to President Trump's tariffs causing market turmoil and recession fears.https://t.co/toV7wUYrgD
— Mortgage Professional America Magazine (@MPAMagazineUS) April 7, 2025
That would mirror a 2020 move by the central bank to ease fears of a sharp downturn – and this week, markets have also upped expectations that it could introduce an unscheduled interest rate cut to steady a teetering economy.
The overnight chaos accelerated as Trump confirmed his administration was pushing ahead with massive 104% tariffs on Chinese imports, less than a week after he introduced a sweeping wave of levies against trading partners and a 10% “baseline” tariff on all countries transacting with the US.
Unease at administration’s trade war continues to grow
While intervention by the Fed might steady markets, Saravelos believes only a reversal of the Trump administration’s approach would improve the outlook in the medium term.
Former Treasury secretary Lawrence Summers also called for Trump to climb down on tariffs, warning on X that the economy could be headed for a crash as a result of the trade war. “Developments in the last 24 hours suggest we may be headed for serious financial crisis,” he wrote. “Long-term interest rates are gapping up, even as the stock market moves sharply downwards.
“This highly unusual pattern suggests a generalized aversion to US assets in global financial markets. We are being treated by global financial markets like a problematic emerging market. This could set off all kinds of vicious spirals, given government debts and deficits and dependence on foreign purchasers.”
But Trump has shown no willingness to back down on the global trade war he launched last week in the Rose Garden.
In a speech last night at a National Republican Congressional Committee dinner in Washington, the president said other countries were lining up to “kiss my ass” and strike trade deals even as the chaos escalated.
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