JPMorgan Chase CEO Jamie Dimon is bracing for a disruption within the close to $30 trillion U.S. Treasury market — one he says might power the Federal Reserve to step in, simply because it did through the early days of the COVID-19 pandemic.
“There will be a kerfuffle in the Treasury markets because of all the rules and regulations,” Dimon mentioned in a Friday earnings name, warning that the Fed gained’t act till “they start to panic a little bit.”
Dimon’s comments come as bond yields spike and market volatility rises. The rising yields have suggested investors are pulling back from popular trades that exploit gaps between Treasury prices and futures, adding stress to a market already rattled by trade tensions under the escalating U.S.-China trade war.
Dimon said current regulations are keeping banks from stepping in as buyers when liquidity dries up. In 2020, a similar situation forced the Fed to launch a multi-trillion-dollar bond-buying program to keep the market functioning.
He’s pushing for reforms that would let banks act more freely as intermediaries. One idea under discussion is exempting Treasuries from leverage ratio calculations, which could allow institutions to buy more government debt without hitting capital buffers.
“If they don’t [change the rules], the Fed will have to intermediate, which I think is just a bad policy idea,” Dimon mentioned.
The Treasury market performs a central function in world finance, setting the tone for every little thing from mortgage charges to company bond yields. Dimon warned that if the system locks up once more, the results might ripple throughout the financial system.
A Treasury market disruption that results in Fed intervention might drive some traders towards bitcoin (BTC), which is usually seen as a hedge in opposition to 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 affect, might have additionally factored into bitcoin’s value leap.
