The hawk Fed Chair who broke the bond market?

Key Points:

• Thirty-year Treasury yields have reached their highest levels since 2002, with the 10-year yield jumping over half a percentage point in September, marking the worst month for U.S. government bonds in four years.
• Traditional explanations like technical market dynamics and strategic risks such as inflation and deficits do not fully explain the sharp rise; the key driver is the Federal Reserve's hawkish shift signaled at Jackson Hole in late August.
• Following Fed Chair Warsh's tough rhetoric and rate hikes, markets priced in a series of further increases, prompting a sell-off reminiscent of the 2022–23 aggressive tightening cycle that caused significant losses in bonds, banks, and housing markets.
• The bond market has seen over $1 trillion in losses since Jackson Hole, with banks facing nearly $500 billion in unrealized losses on securities, and mortgage rates rising sharply, dampening home sales and increasing losses in mortgage-backed securities.
• The Fed's commitment to maintaining credibility through higher rates imposes significant costs on consumers, businesses, banks, and global economies, raising concerns about whether the economic pain is justified by the benefits of price stability.