U.S. Treasury Yields Climb as Fed Candidate Kevin Warsh Spooks Bond Markets

U.S. and European bond markets charted starkly different courses last week, with a sell-off in Treasuries intensifying after President Donald Trump named Kevin Warsh as his candidate to lead the Federal Reserve.

The U.S. sovereign debt curve steepened across all maturities from five years onward, driven largely by the final trading session of the week. The yield on the benchmark 10-year Treasury note climbed to 4.25% in the secondary market.

The market reacted to the prospect of a Warsh-led Fed with selling, even though he is viewed as an aggressive figure. Investors are weighing expectations that Warsh would advocate for interest rate cuts against a simultaneous rapid reduction of the central bank’s balance sheet.

In Europe, the trend was reversed. Most sovereign bonds saw their prices rise, pushing yields lower than where they started the week. Germany’s 10-year bund yield fell below 2.9%, while its Italian and French counterparts hovered near 3.5%. Spain’s 10-year bond yield settled at 3.22%.

Investor appetite for European public debt remains strong. Analysts at Société Générale anticipate that high market liquidity and government financing needs will sustain both supply and demand for new bond issues this year. They project issuance volumes in the Spanish market for public, corporate, and financial debt to be similar to last year’s levels.

The market is already pricing in an end to Europe’s rate-cutting cycle. An upward adjustment is not anticipated until next year, according to expectations compiled by FactSet, a dynamic that could challenge returns for more conservative investor portfolios.

Meanwhile, in Asia, Japanese government bonds continue to pose a threat to the fixed-income landscape. The 10-year yield has surpassed 2.2% amid fears of potential intervention from the Bank of Japan, and possibly even the U.S.