Bond Traders Demand ‘Warsh Premium’ as Treasury Yields Surge

Former Dallas Fed President Robert Kaplan stated that bond traders are incorporating a ‘Warsh premium’ into Treasury yields due to uncertainty surrounding Fed Chair Kevin Warsh. Following the Fed's 25 basis point rate hike to 3.75%–4% on September 16, markets are pricing in more aggressive tightening than the Fed's projections suggest. The 10-year Treasury yield has risen to approximately 5.25%, over 100 basis points higher than a year ago. Additionally, Kaplan noted that elevated diesel prices, driven by geopolitical conflicts, are contributing to inflationary pressures, though he suggests the market may be overestimating the Fed's future actions.