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Chart of the Week: Warsh spooks long bonds

The yield curve steepening is unusual for a Fed hold

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Hakyung Kim

PublishedAugust 1 2026

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Good morning. The bond markets were unhappy with Federal Reserve chair Kevin Warsh’s press conference on Wednesday, following the central bank’s decision to keep rates steady. The Treasury yield curve steepened, meaning the difference between short-term and long-term borrowing costs increased. It was a “bear steepener” — the two-year yield fell as the odds of a rate increase for the rest of the year declined, while the 30-year yield jumped to 5.2 per cent, the highest level since 2007.

This steepening, and its magnitude, is an unusual reaction following a “hold” decision. The only other similar instance followed the November 2010 meeting, when the Fed rolled out its second round of quantitative easing. It suggests investors have lost some confidence in the ability of Warsh’s Fed to rein in inflation. Though there was a higher than usual degree of uncertainty about the central bank’s decision beforehand, on balance investors had expected rates to stay unchanged. The bond market’s jitters came from Warsh’s press conference, where he all but refused to explain the Fed’s decision to do nothing, despite persistently above-target inflation. Ryan Wong of HSBC says the market is adding a “credibility premium”.

Warsh has indicated a preference for some “natural” volatility in the markets, which he believes has been dulled by a Fed that makes too many forecasts and explains itself too much. While a quieter central bank is not historically unprecedented — neither Paul Volcker nor Alan Greenspan were big talkers — the lack of guidance has left room for traders to imagine the worst. Warsh and the rate-setting committee can’t be happy with the rise in long-dated borrowing costs.

Elias Haddad at Brown Brothers Harriman said: “He may now find himself in a more consequential battle with markets that can further raise long-term yields, weaken the dollar and force the Fed into a more painful response.”

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