JPMorgan Chase CEO Jamie Dimon is bracing for a disruption within the close to $30 trillion U.S. Treasury market — one he says may pressure the Federal Reserve to step in, simply because it did through the early days of the COVID-19 pandemic.
“There will probably be a kerfuffle within the Treasury markets due to all the foundations and laws,” Dimon mentioned in a Friday earnings name, warning that the Fed gained’t act till “they begin to panic slightly bit.”
Dimon’s feedback come as bond yields spike and market volatility rises. The rising yields have advised traders are pulling again from in style trades that exploit gaps between Treasury costs and futures, including stress to a market already rattled by commerce tensions beneath the escalating U.S.-China commerce struggle.
Dimon mentioned present laws are preserving banks from stepping in as consumers when liquidity dries up. In 2020, the same scenario pressured the Fed to launch a multi-trillion-dollar bond-buying program to maintain the market functioning.
He’s pushing for reforms that may let banks act extra freely as intermediaries. One thought beneath dialogue is exempting Treasuries from leverage ratio calculations, which may enable establishments to purchase extra authorities debt with out hitting capital buffers.
“In the event that they don’t [change the rules], the Fed should intermediate, which I feel is only a dangerous coverage thought,” Dimon mentioned.
The Treasury market performs a central position in international finance, setting the tone for every part from mortgage charges to company bond yields. Dimon warned that if the system locks up once more, the implications may ripple throughout the financial system.
A Treasury market disruption that results in Fed intervention may drive some traders towards bitcoin (BTC), which is usually seen as a hedge towards financial instability. That seems to have been the case in 2020, when bitcoin’s value surged following the Fed’s aggressive stimulus response. Others components, together with the cryptocurrency’s 2020 halving influence, may have additionally factored into bitcoin’s value leap.
