SINGAPORE — Short-end US Treasury yields fell on Tuesday after President Donald Trump fired Federal Reserve governor Lisa Cook in an unprecedented move, fuelling bets her replacement would be a dovish one who would push for more rate cuts.
Trump on Monday fired Cook over claims of mortgage borrowing impropriety, having days earlier called on her to resign after US Federal Housing Finance Agency Director William Pulte, who was appointed by Trump, accused Cook of claiming two of her mortgages as primary residences.
The US Department of Justice had said it was looking into the matter.
Cook’s firing sent the dollar falling alongside US Treasury yields on the front-end of the curve, on heightened expectations of more rate cuts and renewed worries over Fed independence.
The two-year yield, which typically reflects near-term rate expectations, fell as much as 4 basis points to an intraday low of 3.6900 percent.
The five-year yield dropped 3 bps to bottom at 3.7570 percent. It last stood at 3.7799 percent.
The firing of Cook marks an escalation in Trump’s attempt to reshape the makeup of Fed leadership. He has been pressuring the central bank for aggressive rate cuts at a time when Fed officials have kept them steady due to ongoing worries about inflation.
Cook’s exit from the Fed – she had been serving in a term due to expire 2038 – could speed up the president’s efforts to shake up the central bank.
“This doesn’t look good. The Fed doesn’t look like an independent organisation anymore,” said Shoki Omori, chief desk strategist at Mizuho Securities in Tokyo.
“Markets have not priced in the fact that Trump could go after other Fed officials. What is priced in right now is that we have a higher chance of a rate cut in September and further cuts this year… The dollar and US rates will perform (based on) how aggressively Trump speaks about the Fed going forward.”
Futures currently point to a roughly 82 percent chance the Fed would lower rates next month, with just over 53 bps worth of easing expected by December.
Further out the curve, the benchmark 10-year US Treasury yield was last up about 1.5 bps to 4.2906 percent, while the 30-year yield rose as much as 4.4 bps to touch a high of 4.9330 percent.
