President Donald Trump’s actions are having the opposite effect he wants when it comes to rates. On Monday, he moved to fire Federal Reserve Governor Lisa Cook over allegations of mortgage fraud . Tuesday he said he will soon have a ” majority ” of his own nominees to push for a lower central bank overnight borrowing rate.”People are paying too high an interest rate. That’s the only problem with us. We have to get the rates down a little bit,” said Trump. The bond market, however, is not reacting with lower rates. The benchmark 10-year and 30-year Treasury yields have actually moved higher this week. The former — used to price everything from credit card debt, mortgages and auto loans — traded near 4.29% on Wednesday, while the 30-year climbed to 4.95% — near the psychologically important 5% level. US30Y 5D mountain US 30-year yield 5-day chart “The yield curve twisted steeper … in a move that offered a glimpse of the Treasury market’s reaction function to the erosion of Fed independence,” wrote Ian Lyngen, head of U.S. rates at BMO Capital Markets. The moves reflect a “higher term premium for the risks associated with a politicization of the Central Bank.” “Whether Trump’s actions are politically motivated or not, the push to remove Cook is consistent with the President’s broader campaign for lower policy rates. This reality has underpinned the market’s concerns around the Fed’s independence and U.S. creditworthiness,” wrote Lyngen. Evercore ISI’s Krishna Guha also warned of a potential ” riot in the bond market ” as the Fed’s credibility and independence are increasingly thrown into question. Not only that, but the moves this week in the bond market defeat Trump’s efforts of to help out homeowners paying high interest rates. Mortgage rates are largely determined by where the 10-year and 30-year yields are trading, and when those two move higher, don’t expect mortgage rates to come down anytime soon. Stocks would normally come be under pressure when the bond market moves like this, as future profits becomes less valuable the higher interest rates go. Instead, equity traders are laser-focused on Nvidia ‘s latest earnings report, due Wednesday after the bell. But, as Adam Crisafulli of Vital Knowledge points out: “The end of Fed independence will have significantly negative consequences for years to come.”
