Bond market shaken
Long-dated US government debt sold off sharply on Tuesday after Donald Trump’s attempted firing of Federal Reserve governor Lisa Cook rattled confidence in the central bank’s independence.
The move pushed the gap between long- and short-term borrowing costs to near three-year highs as traders priced faster near-term cuts but higher long-run inflation.
Dollar under pressure
The US dollar slipped 0.3% against major peers. Two-year Treasury yields fell to 3.7%, while 30-year yields touched 4.97% before easing to 4.91%.
Aviva Investors’ Fraser Lundie warned that any government “at risk of direct political influence” faces weaker currency performance and higher risk premia on long-dated debt.
Political storm
Trump said late Monday that Cook was dismissed “effective immediately” over alleged mortgage fraud. If upheld, the sacking would give him scope to install a replacement sympathetic to rate cuts.
Senate Democrat Elizabeth Warren called it an “authoritarian power grab”, while legal scholars noted the White House must prove cause in court.
Fiscal dominance fears
Economists framed the turmoil as creeping “fiscal dominance”, with policy bent to political needs. Deutsche Bank’s George Saravelos said the Fed was “now subject to intensifying fiscal dominance risks”, arguing markets had been “too complacent”.
Goldman Sachs described a risk-off reaction across US assets and warned that threats to Fed independence pose “clear downside risks” for the dollar.
Market backdrop
Unease has built over Trump’s criticism of chair Jay Powell, the temporary appointment of Stephen Miran to the rate-setting committee, and the sacking of a senior statistics official. With Treasuries underpinning global borrowing, widening spreads underscore concern that political intervention could weaken a cornerstone institution.
