JPMorgan Chase CEO Jamie Dimon is bracing for a disruption within the close to $30 trillion U.S. Treasury market — one he says might pressure the Federal Reserve to step in, simply because it did through the early days of the COVID-19 pandemic.
“There can 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 received’t act till “they begin to panic just a little bit.”
Dimon’s feedback come as bond yields spike and market volatility rises. The rising yields have advised traders are pulling again from standard 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 warfare.
Dimon mentioned present laws are protecting banks from stepping in as patrons when liquidity dries up. In 2020, an identical scenario compelled the Fed to launch a multi-trillion-dollar bond-buying program to maintain the market functioning.
He’s pushing for reforms that will let banks act extra freely as intermediaries. One thought beneath dialogue is exempting Treasuries from leverage ratio calculations, which might 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 function in world finance, setting the tone for every thing from mortgage charges to company bond yields. Dimon warned that if the system locks up once more, the implications might ripple throughout the financial system.
A Treasury market disruption that results in Fed intervention might drive some traders towards bitcoin (BTC), which is commonly 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 elements, together with the cryptocurrency’s 2020 halving impression, might have additionally factored into bitcoin’s value leap.
