Jamie Dimon, the CEO of JPMorgan Chase, anticipates significant turbulence in the U.S. Treasury market, driven by current regulations. He believes this instability will eventually force the Federal Reserve to intervene. 

Dimon’s prediction is rooted in the recent surge in Treasury yields, particularly long-term debt, amidst market turmoil caused by President Trump’s evolving tariff policies.

Dimon points to regulatory hurdles, specifically bank rule changes, as a primary cause of the impending market disruption. He highlights the need for reforms to allow banks to act as more active intermediaries in the Treasury market. 

One speculated change is exempting Treasuries from the US banks’ supplementary leverage ratio (SLR), which would enable banks to hold more Treasury debt without negatively impacting their capital ratios. And when has that ever worked out poorly?

But Dimon argues the issue extends beyond the SLR, citing “deep flaws” in some regulations he says hinder banks’ ability to effectively participate in the market. He contends that these regulations contribute to wider spreads and reduced liquidity in the Treasury market, which can have ripple effects across all capital markets.

Dimon draws parallels to the market turmoil of March 2020, when the Treasury market seized up due to rapid unwinding of positions during the onset of the COVID-19 pandemic. The Fed was compelled to intervene, purchasing trillions of dollars in bonds and providing emergency funding to the repo markets. Dimon believes without regulatory changes, a similar scenario could unfold.

The selloff in Treasuries has intensified, with yields on 10-year notes and 30-year bonds experiencing significant increases. This volatility raises concerns about the safe-haven status of Treasury debt and the potential unwinding of leveraged trades.

Dimon’s prediction of Fed intervention suggests that the central bank may be forced to step in to stabilize the market, potentially through bond purchases or other measures. However, he argues proactive regulatory reforms would be a more effective solution, preventing the need for such interventions.

Investors should brace for increased volatility in the Treasury market and be mindful of the potential for Fed intervention. The regulatory landscape and its impact on market liquidity should be closely monitored, as it could have broader implications for interest rates and other asset classes. Dimon’s warning underscores the importance of regulatory reform in maintaining a stable and efficient Treasury market.