JPMorgan Says Treasury Curve Can Steepen on Miran Fed Pick

The US Treasury curve could steepen from its widest level in four years if President Donald Trump succeeds in making a key appointment to the Federal Reserve, according to strategists at JPMorgan Chase & Co.

The spread between US five- and 30-year yields widened on Thursday after Trump Council of Economic Advisers Chairman Stephen Miran to serve as a Fed governor. The appointment needs to be confirmed by the senate. That followed earlier reports that Governor Christopher Waller was to replace Jerome Powell as chair.

“Miran has consistently argued that the Trump administration’s trade, immigration and deregulation policies are all disinflationary,” JPMorgan analysts led by Jay Barry wrote in a note published late on Thursday. “To the extent that this supports a more dovish Fed policy, it supports the steepening witnessed this afternoon.”

US 30-year yields were steady at 4.82% on Friday.

The spread is hovering just above 100 basis points, more than double the level it was trading at on Trump’s inauguration day. Investors demanded an additional premium to account for the uncertainty that followed Trump’s Liberation Day tariff announcement in April and the increased fiscal spending arising from a passed last month.

Miran is the co-author of a published in March last year, which called for the Federal Reserve to be reformed in order to deliver better outcomes.

Danske Bank’s chief strategist Frederik Romedahl said that while Miran’s appointment “adds some uncertainty,” it won’t be a game changer for the yield curve. Factors like the deficit, bond issuance strategy and the near-term Fed outlook will be much more important, he wrote in a note.

Money markets amped wagers on Fed cuts after weak jobs numbers last week. Swaps currently assign a 95% chance of a 25-basis-point Fed cut in September and price at least one more reduction by year-end. Traders will soon be looking ahead to next week’s release of US inflation numbers which are forecast to slow to 0.2% in July from 0.3% in June, according to a Bloomberg poll of economists.

JPMorgan economist Michael Feroli brought forward his forecast for the next quarter-point interest-rate cut to September after Miran’s appointment. He maintained his call for three more reductions at the subsequent three meetings.