Deutsche Bank recently warned that if the chaos that previously caused US long-term loan interest rates to exceed 5% continues, the US Federal Reserve (Fed) will be forced to intervene to stabilize the US Treasury bond market.
In the context of increasing concerns about the safety of US assets - especially due to the negative impacts from trade wars and tariffs during former President Donald Trump's administration - the sell-off of US government bonds has continued to escalate. On Wednesday, the 30-year Treasury bond yield surged to 5.02%, marking the highest level since November 2023.
George Saravelos - Global Head of Foreign Exchange Strategy at Deutsche Bank - said that if the bond market continues to be as volatile as it is now, the Fed may be forced to activate a similar "circuit breaker" mechanism to prevent widespread collapse. Specifically, he mentioned the possibility of the Fed deploying an emergency quantitative easing program, which means purchasing Treasury bonds to stabilize yields and reinforce market confidence.
He wrote:
"If the recent volatility in the US Treasury bond market continues, we believe the Federal Reserve will have no other choice but to urgently purchase bonds to stabilize the market."
This assessment comes as many investors are concerned that prolonged trade wars and internal political risks in the US could put heavy pressure on borrowing costs and the country's economic growth prospects. The emergency intervention from the Fed - if it occurs - would mark a significant reversal in monetary policy, which has been aimed at tightening to curb inflation.
